The Dogs of Spiders

Definitely don't buy this dip!

Over the last couple of weeks, we’ve been looking at different ways to trade the S&P 500 Sector SPDRs (Spiders.) We started with using the Efficient Frontier to make the allocation decision for us in our first post:

StockViz
Spider Hunting
At StockViz, we are big fans of diversified portfolios. While investing in international funds have gathered traction lately, Indian investors continue to be under-diversified. We have been beating the drum for having international funds in your portfolio for a while now…
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Then, we looked at buying the best performing sector over different time-frames.

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Rotating Spiders
Last week’s post introduced the S&P 500 Sector Spiders and presented a backtest of a simple strategy (that didn’t work.) This week, we outlined a simple momentum-based rotation strategy that also didn’t work. Worse, it worked before 2010 and stopped working after that. So, if you were unlucky enough to run this backtest 10 years ago, you would’ve watched…
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None of them worked.

This week, we tried the opposite: What if we bought the worst performing sector?

Turns out that once again, it worked before 2010 and failed in the subsequent decade. Inquisitive readers can find the highlights here.

Next week, we’ll look at a momentum based weighing scheme. It is the last one, we promise!

Book Review

Finally finished reading Agustin Lebron’s The Laws of Trading. It gets a bit tedious sometimes but it is well worth the read. Some thoughts.

Meme of the Week

Don’t fight the tape!