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Strategies & Market Trends : Trading the SPOOs with Patrick Slevin! -- Ignore unavailable to you. Want to Upgrade?

To: Patrick Slevin who wrote (4410)	4/13/2000 8:01:00 PM
From: fut_trade	Read Replies (1) \| Respond to of 7434

My thought at this point is that restricting the pool of stocks to the OEX is a limitation because the OEX contains quite a few low-market-cap stocks. The largest, most volatile stocks of the SPX are needed in the pool. Then I was thinking of making two groups (as you suggest) of the 12 highest and lowest beta stocks. A market-direction indicator could then be defined as the sum of the market caps of the high beta stocks minus the sum of the market caps of the low beta stocks. Perhaps it could be normalized by the sum of the market caps of all the stocks in the pool - this would limit the indicator to values ranging from -1 to 1. ...Intermediate-term Trend Indicator Given the wild swings of the market from week to week, I'm thinking that it would be nice to have a general idea where the market is going several days ahead. I guess one way to test the indicator is to make a plot of the indicator (x-axis) calculated for a given day and the percentage change of the SPX (y-axis) three days later (duration of the intermediate trend?). Maybe the 10-day MA of beta will need to be adjusted. I don't have a lot of confidence in derived indicators, but I think it's worth a try. If the plot doesn't show any correlation, then we trash the idea. My second thought is that this approach is more likely to be useful in stock trading, going long the high-beta stocks or short the low-beta stocks depending on the value of the market-direction indicator.

To: Patrick Slevin who wrote (4410)	4/13/2000 10:51:00 PM
From: fut_trade	Read Replies (1) \| Respond to of 7434

Here are the results of the first try. It doesn't look too promising. Maybe a more sensitive indicator is needed, or more than 24 companies need to be considered? 03/06/00 0.020927 1391.28 03/07/00 0.034118 1355.62 03/08/00 0.051235 1366.70 03/09/00 0.043042 1401.69 03/10/00 0.035266 1395.07 03/13/00 0.029182 1383.62 03/14/00 0.029694 1359.15 03/15/00 -0.014510 1392.14 03/16/00 -0.033271 1458.47 03/17/00 -0.022655 1464.47 03/20/00 -0.007201 1456.63 03/21/00 -0.028738 1493.87 03/22/00 0.013933 1500.64 03/23/00 -0.002254 1527.35 03/24/00 -0.011116 1527.46 03/27/00 0.040686 1523.86 03/28/00 0.004083 1507.73 03/29/00 0.107359 1508.52 03/30/00 0.093035 1487.92 03/31/00 0.070241 1498.58 04/03/00 -0.032604 1505.97 04/04/00 -0.061137 1494.73 04/05/00 -0.055293 1487.37 04/06/00 -0.034633 1501.34 04/07/00 -0.009827 1516.35 04/10/00 -0.035786 1504.46 04/11/00 -0.042546 1500.59 04/12/00 -0.059088 1467.17 04/13/00 -0.061842 1440.51 It did show some indication of the wild swing on Apr 4, where the indicator had a large drop the previous day on Apr 3. However, for day-to-day trading, this indicator doesn't seem very useful in it's present form.

To: Patrick Slevin who wrote (4410)	4/13/2000 11:52:00 PM
From: fut_trade	Read Replies (1) \| Respond to of 7434

This appears to be a bit more meaningful. Shown below are the average beta and (average market cap) for the high and low beta stocks. Over the past couple of days, the larger cap SPX stocks having been dropping. Whether or not this has predictive value (as opposed to explanantion of an event) remains to be seen. 03/24/00 1.015(174) 0.982( 74) 1527.46 03/27/00 1.018(148) 0.985( 82) 1523.86 03/28/00 1.017(125) 0.986( 77) 1507.73 03/29/00 1.016(146) 0.982( 92) 1508.52 03/30/00 1.022( 63) 0.983(106) 1487.92 03/31/00 1.021( 45) 0.981( 77) 1498.58 04/03/00 1.027( 66) 0.971(111) 1505.97 04/04/00 1.030( 75) 0.971(104) 1494.73 04/05/00 1.024( 68) 0.979(100) 1487.37 04/06/00 1.017( 72) 0.983( 74) 1501.34 04/07/00 1.017(104) 0.985( 75) 1516.35 04/10/00 1.015( 97) 0.984( 74) 1504.46 04/11/00 1.011(123) 0.985(119) 1500.59 04/12/00 1.017( 79) 0.982(142) 1467.17 04/13/00 1.021( 67) 0.979(114) 1440.51