The Best and Worst Days

As covered a couple of weeks ago, we frequently assess the robustness of a trading model by comparing out-of-sample data to expected in-sample results.  Two weeks ago, we retrieved analysis prepared for a presentation made to a medium-sized hedge fund in Chicago in September 2014 to see if the negative Friday’s pattern was still as consistent as it was during the 2000-14 study period – which it was.  We’re pulling from the same deck this week to see if the “Best and Worst” days pattern defined in May 2014 may still be in play.

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Here’s the table from 2014 showing the sum of the DJ30 gains from January 2000 through August 2014 based on the trading day of the month (the numerical sequence of the days the market was open during the month regardless of the calendar date).  It shows a defined pattern of gains during the first and middle of the month and 3-5 day period of weakness starting just after the 2nd half of the month.  The notes on the bottom show that a strategy that went long on the green highlighted days and short on the orange days would have had a sum gain of 182% over the 14-year period versus 72.3% for the buy and hold strategy.  This is a 2.5X difference (please note that these are simple sum numbers for the purposes of comparison with no attempt to quantify the compounding effects during the 14 years which would further amplify the results).

So how would have this strategy worked during our most recent out-of-sample data set, September 2020?  This simple best 9 days, worst 3 days strategy as outlined in 2014 would have generated a 3.5% gain versus a 2.4% loss for the SP500 in September.  The strategy is easily executed by buying the DIA ETF at the close of the prior day and then replacing this position with the DOG ETF at the close on the 12th trading day of the month.  We’ll provide a longer-term update of this strategy within a few months to see how it performed over multiple years since September 2014.

Forte Strategy Update

We executed one trade last week for a net gain of 1.1% compared to a gain of 1.5% by the S&P 500.  Our YTD net results equal a 5.9% gain compared to a 3.6% YTD gain for the S&P 500. Our YTD max drawdown is 9.5% versus 33.9% for the general market. 

More details about our trading activity can be found by registering on the Collective2 website and searching for Forte Strategy. A running list of these email blogs and general information about Maestro Capital Research can be found at maestrocapitalresearch.com.

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