Historic Drawdowns in market

The last two weeks steep downhill and loss of 10+ percent on S&P


The chart below shows calendar year S&P 500 returns without dividends (grey vertical bars).  Below the bars are red numbers which indicate the maximum intra-year drawdowns.  The chart makes clear that 10% drawdowns are fairly common.  What is not common is a drawdown of only 3% which was the case in 2017.

Another important observation from the above chart is that as long as the economy is not in a recession (areas shown with horizontal green bars), the calendar year returns are usually positive.  The U.S. is not currently in a recession.

From January 1950 through December 2017, the S&P 500 has declined by 5-10% 41 times.  The average length of the decline was one month.  The average recovery from the low was one month.  In the 11 cases that the S&P 500 declined by 10-20%, the sell-off lasted and average of 4 months and recovery took and average of 3 months.

Source : delta maker sentiment

Market still in correction

accumulation distribution (money flowing in and out of the market) gets a grade of C to D. Which means that there is a net flow of money out of the market. (A, A+ is the best time to keep the money in the market).

Delta Market Sentiment Indicator is below 50.

So, the bottom line is this : Stay in the sidelines, till the big money (Mutual funds, Institutional investors) get back in.

Happy waiting!

PS: Source of the above article is Delta Investment Management newsletter and Investors Business daily.

Does valuation matter for our style of trading?

Good Morning

this morning i read this in yahoo finance (note the 20/20 vision looking at the past) – “To those poor souls Trennert suggests backing up and remembering that valuation always matters. Corrections lead to selling that takes down blue chips as well as garbage names.”

I am not a poor soul, I did not get into the market. Because the market is still in correction (How long or how short time will tell).

Let me again empathize the fundamental difference. I trade based on one and only one thing – Price.

I have one and only one signal – 75 day Simple Moving Average.

DMSI, and IBD big picture help me a lot in confirming my signal.

So valuation based on opinions don’t matter in my style of trading.

Happy trading.



Market Overview

Good Morning

The market is in correction. Distribution days have reached and have tipped over. Get in cash, to be on safe side.

But the DMSI has not triggered. That is the signal is still 100% equity. I am not getting into cash as yet. I will wait and see.

The Delta MSI measures the position of ~3,600 stocks relative to an intermediate-term moving average crossover (MAC) point. When greater than 50% of the stocks followed are above this MAC point, the market is bullish and equities are attractive. When the indicator is below 50%, risk is elevated and stock exposures should be reduced. Manager uses discretion on asset allocation when MSI is 50% +/- 3%


Current Sentiment Last Week 2 Weeks Ago 3 Weeks Ago
BULLISH 57.3% 59.1% 61.7%

Current Market Exposure: 100% Equities, 0% Bonds, 0% Cash


Market Update

Hello all

the market has entered into correction. So be aware. Get into cash or bonds. DMSI is still bullish, but on March 21st QLD ETF has crossed over to the dark side. (It happened on March 26th for QQQ). In a way you could say QLD is a leading indicator of QQQ (though technically it is not true, QLD is basically 2 times QQQ).

So the best course of action now is to be cautious and wait and see. It is not yet a very clear signal to sell (the third com formation is DMSI), but QLD signal is good enough.

Happy waiting to trade.


Current Sentiment Last Week 2 Weeks Ago 3 Weeks Ago
BULLISH 59.1% 61.7% 66.9%


alright amigoes, been back from India

I suggest you all visit her. Especially the teachers. India is sublimely beautiful. The people, food and more importantly the whole experience is quiet a feast to all the senses.

the Market’s is not bad, except the uptrend is under constant downward pressure. The delta market sentiment Indicator is as following

Current Sentiment Last Week 2 Weeks Ago 3 Weeks Ago
BULLISH 61.7% 66.9% 64.1%

Current Market Exposure: 100% Equities, 0% Bonds, 0% Cash.

I have started to write a primer on trend following. I hope to finish it soon (year 2014?).


Happy trading and travelling


Market as of Last week (12/16-12-19)

Market’s uptrend has resumed, but the distribution days (high volume selling in major indexes) is still valid but has reduced to 5-6. A distribution day is defined as the loss of more than 0.2% by a major index — the Nasdaq, the NYSE composite or the S&P 500 — as volume ticks higher than the prior session’s total. Tracking the accumulated damage is crucial to gauging a market’s health.

There are three ways a distribution day can fall off the count. The first is by the calendar. After 25 sessions, a distribution day expires. The count falls by one. I will later explain the other two.

Delta Market sentiment indicator is still bullish, based on Last week’s readings.


Current Sentiment Last Week 2 Weeks Ago 3 Weeks Ago
BULLISH 59.2% 62.3% 68.2%

Current Market Exposure: 100% Equities, 0% Bonds, 0% Cash

As you can see, it is dropping. But this this last Wednesday on Dec 18th after the Federal Reserve meeting, the market went up. It was high volume rally, volume increase across the board.

Now it is not good or bad for us. Because we just react to the market – we don’t predict it or hope things change. We let the market do what it wants and we just act accordingly. The market remains irrational as long as we are solvent. So in order to avoid our insolvency we don’t act in reaction to the market, with it and not against it. We bet with the market – if it’s going up we buy financial instruments the would correlate with that (like buying call options), if its going down we buy financial instruments the would correlate with that (like put options).

We are just focused on one and only one indicator and that is price – It is the true north star. We do not bother or concern about the news, federal reserve, analysts opinions etc. etc.

All we see is the price, for example the price of QQQ, and the volume associated with that – If the price of QQQ reduces in high volume for 6-8 times in last 25 trading sessions we covert into cash or buy put options.

At present – the market is back on the upswing. So we buy call options on stocks or ETFs like QQQ or just buy QQQ and wait. Its as simple as that

I will post shortly – the sectors that are also in the upswing, the industry groups that are in the upswing, and also the stocks that are making new highs.

Happy Trading