Sunday, March 25, 2007

Getting Perspective on Future Nasdaq Performance

I’ve been experimenting with Excel in an effort to start wrapping my mind around how to program a system to backtest ideas. Specifically, I’ve been looking at the history of momentum in the QQQQ, not so much to provide trading opportunities, rather, to give some guidance as to what one might expect after a given market event.

After the markets begin to correct in February, I began waiting for a high-percentage gain day which might mark a bottom to the correction. After making a double-bottom on March 14, the Nasdaq Composite followed-through 5 days later on March 21st, closing higher than 1.9% from the previous close.

What does a market event such as a close >1.9% the previous day’s close portend for near-term market momentum? Using the QQQQ to track the Nasdaq Composite, I’m hoping to gain some insight as to what the next 2 weeks might hold for the Comp. and ultimately for my portfolio as it is heavily weighted in technology.

Sample Data: QQQQ – October 10, 2002 to March 23, 2007.

Starting equity for the sample period was $1o,ooo. The data in the table above shows that time is on the side of the longs after the QQQQ closes >1.9% the previous close. The green numbers represent the best results for each category. On average, the QQQQ has closed ~0.8% higher ten days after the >1.9% close.

This test does not really generate a killer strategy, but that was not the point. As I go into next week 103% net long, it is helpful to have some assurances as to where the market might head. A Nasdaq close up .797% 10 days later from its March 21st close leaves the index at 2475.49 on April 4th. After my recent buying spree it is reasurring to know that a gain of >1.9% the previous close usually leads to a continuation of momentum over the next 10 days.


Ambient Insight said...

Interesting. I want to see us move past 2400, right now thats the pivot point.

Woodshedder said...

Did you mean 2500?