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Selling Almost Useless Signals in the Unchartable Stock Market 2021

(Bloomberg) – If you’ve bailed out from the Bollinger Bands, escaped relative strength, or headed the market directional indicator in 2021, you’ve paid for it. investors doing anything other than buying have done them a disservice this year. In fact, when applied to the S&P 500, 15 of 22 chart-based indicators tracked by Bloomberg actually lost money, according to back-testing data. And all of them do worse than a simple buy and hold strategy, which is up 11%. Of course, few investors use technical studies in isolation, and even when they do, they do. rarely rely on a single mapping technique to inform their decisions. But if anything, the exercise is reminiscent of the futility of qualifying a market leading in a year when the trip was essentially a one-way ticket. “What we’ve seen this year is a very strong rising market that hasn’t. get a lot of setbacks, ”said Larry Williams, 78, creator of the Williams% R indicator designed to capture a change in a safety’s momentum. A technique-based long-short strategy is down 7.8% since the end of December. “All of the overbought and oversold indicators, mine and anyone else’s, haven’t received a lot of buy signals, but a lot of sell”, it’s hard to resist the temptation to book profits and bail after the S&P 500’s best 12-month rally since the 1930s. Growing anxiety is a mountain of charts signaling a market that has reached its limits. Earlier this month, the index climbed 16% above its 200-day average, a feat that before December had only happened a few times in the past three decades. In addition, the relative strength index of the benchmark has exceeded 70 on a weekly and monthly basis, a sign that the market has risen too far, too fast. sell orders. Hedge funds, for example, came out this month, ditching tech stocks just days before Apple Inc. and Amazon.com Inc. released their financial results. bet of all. The S&P 500 has yet to cut more than 5% this year. At the same time, missing out on the big days is more punitive than ever. Without the first five sessions, the index’s 11% gain drops to 2%. “To try and guess when it’s a good time to be out of the market, you might as well head to Las Vegas,” said Mark Stoeckle, general manager. agent at Adams Funds. “There are just as many risks in doing this.” Bloomberg’s back-testing model buys the S&P 500 when an indicator signals a “buy” and holds it until a “sell” is generated. At that point, the index is sold and a short position is established and held until a buy is triggered. A strategy following RSI signals has fallen 10% this year. The damage occurred as stocks entered the year with frantic momentum that triggered a sell order. The trade has since been in place because the S&P 500 never retreated fast enough and long enough to buy flash. The moving average convergence / divergence indicator – better known as MACD – suffered a loss of 9.8%. Five of the nine trading signals the model produced were buys, and four of them lost money. In addition, the four brief recommendations were the losers. That is the cost of betting against momentum in a market where the S&P 500 has already eclipsed the average Wall Street strategist’s year-end target. conditions were absorbed by the market with more force, or at best a pause, ”said Jeff deGraaf, co-founder of Renaissance Macro Research, which ranked as top technical analyst in Institutional Investor’s annual survey for 11 consecutive years until 2015. “Overbought / Oversold conditions are unnecessary without first defining the underlying market trend. Williams, who has been negotiating since 1962, agrees. Technical analysis tools aren’t broken, he says, but in a bull market as resilient as this one, investors need to use them in the right context. “You have to have a different tool, if you want, for a job you’re doing,” he says. “I have a hammer that can build a house, but if I use the hammer to dig a hole in the ground, it will be really difficult.” For more articles like this, please visit us at bloomberg.com with the most trusted source of business news. © 2021 Bloomberg LP



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