SP500 0.58% 2,958.8 standard & poor's 500

S&P500 Relative to Observed Mean Reversions

  1. 1,487 Posts.
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    I just pulled out an old long term model to check on the S&P. To assist with chart interpretation I have included some explanatory text.

    Non-Displaced MAV (NDMAV):
    A Non-Displaced MAV has no error meaning it's plot is a perfect fit to the observed price.
    Unfortunately a non-displaced MAV requires forward data to calculate rendering it unsuitable as a realtime indicator

    Simple Moving Average (SMA):
    An SMA mimics the non-displaced MAV however includes a 'Lag Error' (It is a perfect price fit half it's calculation period in the past).
    As the SMA only requires historical data it is a viable alpha factor.


    The good news is the accuracy of the SMA is measurable by it’s relativity to the NDMAV.
    CH_1_SMA Err.JPG
    With this calculated error, the SMA may be displaced to produce a channel within which the NDMAV will most probably lye.
    CH_2_Price_SMA_CHANNEL.JPG


    CH_Price to SMA  Channel.JPG
    To remove the noise of short term fluctuations the broad market moves may be plotted as waves.
    CH_3_Wave2SMAErrCH.JPG
    Analysing the waves, EVERY market peak turning point in history falls within a 110% to 130% zone relative to the SMA.
    CH_TPs.JPG
    Today we sit just short of 90%


    Interested to hear any other quantitative views.
    Last edited by Trae: 19/02/17
 
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