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Simple Tests of Sy Harding's Seasonal Timing Strategy - CXO Advisory 7/5/2018 Simple Tests of Sy Harding's Seasonal Timing Strategy - CXO Advisory Search our research Search Objective research to aid investing decisions START RESEARCH WHAT WORKS MOMENTUM VALUE VALUE- INFLATION TRADING GURU HERE ARTICLES BEST? STRATEGY STRATEGY MOMENTUMSTRATEGY FORECAST CALENDAR GRADES Cash TLT LQD SPY Value Allocations Strategy for Jul 2018 (Final) Overview 1st ETF 2nd 3rd ETF Momentum ETF Strategy Allocations for Jul Overview 2018 (Final) Simple Tests of Sy Harding’s Seasonal Daily Email Updates Timing Strategy [email protected] Subscribe October 9, 2015 • Posted in Calendar Effects, Technical Trading Login Several readers have inquired over the years about the performance of Sy Harding’s Street Smart Report Online (now unavailable due to Mr. Harding’s Username death), which included the Seasonal Timing Strategy. This strategy combines “the market’s best average calendar entry [October 16] and exit [April 20] days Password with a technical indicator, the Moving Average Convergence Divergence (MACD).” According to Street Smart Report Online, applying this strategy to a Remember Me Dow Jones Industrial Average (DJIA) index fund generated a cumulative return LOGIN of 213% during 1999 through 2012, compared to 93% for the DJIA itself. For robustness testing, we apply this strategy to SPDR S&P 500 (SPY) since its Register | Lost Password? | Contact inception and consider several alternatives, as follows: Support 1. SPY – buy and hold SPY. 2. Seasonal-MACD – seasonal timing with MACD refinement. BECOME A CXO 3. Seasonal Only – seasonal timing without MACD refinement. MEMBER 4. SMA200 – hold SPY (13-week U.S. Treasury bills (T-bills) when the S&P 500 Index is above (below) its 200-day simple moving average at the prior daily Gain access to hundreds of close. premium investing research articles and CXO's trading Using daily closes for the S&P 500 Index, daily dividend-adjusted closes for SPY strategies and daily T-bill yields during 1/29/93 (SPY inception) through 9/25/15, we find that: Calculations/assumptions for the Seasonal Timing Strategy are: JOIN NOW Calculate MACD for SPY using the Exponential Moving Average (EMA) https://www.cxoadvisory.com/2640/calendar-effects/simple-test-of-sy-hardings-seasonal-timing-strategy/ 1/6 7/5/2018 Simple Tests of Sy Harding's Seasonal Timing Strategy - CXO Advisory Calculate MACD for SPY using the Exponential Moving Average (EMA) template at StockCharts.com as the difference between the 26-day EMA price and the 12-day EMA price. A bullish (bearish) crossover occurs when MACD moves above (below) its 9-day EMA. Research Categories For each calendar year, sell SPY at the close on April 20 if MACD is bearish or Momentum Investing otherwise at the close on the first day with a bearish MACD after April 20. If April 20 is not a trading day, shift to the last trading day before April 20. Volatility Effects For each calendar year, buy SPY at the close on October 16 if MACD is bullish Technical Trading or otherwise at the close on the first day with a bullish MACD after October 16. Strategic Allocation If October 16 is not a trading day, shift to the last trading day before October 16. Fundamental Valuation The strategy is in the market at the beginning of the sample period (1/29/93). Big Ideas When out of the market, assume a return on cash equal to the contemporaneous T-bill yield. Equity Premium Ignore tax implications of trading semiannually. Investing Expertise Assumptions are the same for the other strategies as applicable. Mutual/Hedge Funds Economic Indicators The following table compares average gross (frictionless) daily returns, standard deviations of gross daily returns, gross annualized Sharpe ratios (from daily data), Value Premium gross compound annual growth rates (CAGR) and maximum drawdowns over the Individual Gurus entire sample period for the four strategies specified above. Buying and holding SPY wins based on average daily return and CAGR. SMA200 wins based on Calendar Effects standard deviation of daily returns, Sharpe ratio and maximum drawdown. Seasonal Animal Spirits Only modestly outperforms Seasonal-MACD. Size Effect For another perspective we look at cumulative performances. Commodity Futures Sentiment Indicators Individual Investing Bonds Equity Options Currency Trading The following chart compares on a logarithmic scale gross performances of $10,000 initial investments over the entire sample period for the same Short Selling four strategies. Terminal values are $67,026, $58,921, $63,251 and $60,362 for Gold SPY, Seasonal-MACD, Seasonal Only and SMA200, respectively. Buying and holding SPY is highest most of the time, but also the most volatile. SMA200 often is Political Indicators higher than seasonal strategies. Seasonal-MACD is sometime above and Buybacks-Secondaries sometimes below Seasonal Only. Weekly Summary How do the four strategies compare based on annual returns? Real Estate Cartoons Aesthetic Investments Recent Research https://www.cxoadvisory.com/2640/calendar-effects/simple-test-of-sy-hardings-seasonal-timing-strategy/ 2/6 7/5/2018 Simple Tests of Sy Harding's Seasonal Timing Strategy - CXO Advisory Recent Research When Machine Learning Works for Investing July 5, 2018 T-bills Beat Most Stocks? July 3, 2018 AAII Investor Sentiment as a Stock Market Indicator July 2, 2018 Momentum Strategy, Value Strategy and Trading Calendar Updates June 29, 2018 Weekly Summary of Research Findings: 6/25/18 – 6/29/18 The next chart shows gross annual returns over the entire sample period for the four June 29, 2018 strategies. Years 1993 and 2015 are partial only. Average gross annual returns (including 1993 and 2015) are 10.3% for buying and holding SPY, 8.4% for Preliminary Momentum Strategy and Value Strategy Updates Seasonal-MACD, 8.9% for Seasonal Only and 8.9% for SMA200. Rrespective June 29, 2018 standard deviations of annual returns are 18.6%, 10.0%, 11.0% and 13.6%. Alternative Momentum Metrics for To explore the value of the MACD refinement, we calculate Seasonal-MACD returns SACEMS? relative to Seasonal Only by year. June 29, 2018 Simple Asset Class ETF Momentum Strategy (SACEMS) Update June 28, 2018 More Blog Posts Popular Posts Momentum Strategy, Value Strategy and Trading Calendar Updates June 29, 2018 Preliminary Momentum Strategy and Value Strategy Updates June 29, 2018 The next chart shows the difference in gross annual returns between Seasonal- Inflation Forecast Update June MACD and Seasonal Only, including partial years 1993 and 2015. Seasonal-MACD 12, 2018 is usually the winner, but three bad years more than offset, such that the average of the series is -0.4% per year. Are trading frictions material? Stock Market Behavior Around https://www.cxoadvisory.com/2640/calendar-effects/simple-test-of-sy-hardings-seasonal-timing-strategy/ 3/6 7/5/2018 Simple Tests of Sy Harding's Seasonal Timing Strategy - CXO Advisory Are trading frictions material? Stoc a et e a o ou d Mid-year and 4th of July June 25, 2018 Stock Returns Around Memorial Day May 21, 2018 Party in Power and Stock Returns May 11, 2018 AAII Investor Sentiment as a Stock Market Indicator July 2, 2018 Bollinger Bands: Buy Low and Sell High? June 14, 2018 Popular Subscriber-Only Posts The final chart summarizes effects of trading frictions, ranging from 0.05% to 0.50% AAII Investor Sentiment as a per one-way trade, on CAGRs for the four strategies. SMA200 is much more Stock Market Indicator July 2, sensitive to trading frictions than the seasonal strategies. Seasonal-MACD and 2018 Seasonal Only switch between SPY and T-bills 45 times, while SMA200 switches Leading Economic Index and 153 times. A monthly SMA would fare better in this regard. the Stock Market May 7, 2018 The friction penalty of timing strategies is generally more severe for small investors, Simple Asset Class ETF who usually bear higher frictions than large investors. Momentum Strategy (SACEMS) Update June 28, 2018 Alternative Momentum Metrics for SACEMS? June 29, 2018 Employment and Stock Market Returns June 5, 2018 Intrinsic Momentum or SMA for Avoiding Crashes? June 12, 2018 Doing Momentum with Style (ETFs) June 18, 2018 AAII Stock Screens May 2, 2018 In summary, evidence from simple tests on available data for SPY offers some support for preferring (based on risk) Sy Harding’s Seasonal Timing Strategy over buy-and-hold but not for preferring the MACD refinement https://www.cxoadvisory.com/2640/calendar-effects/simple-test-of-sy-hardings-seasonal-timing-strategy/ 4/6 7/5/2018 Simple Tests of Sy Harding's Seasonal Timing Strategy - CXO Advisory Strategy over buy and hold, but not for preferring the MACD refinement of seasonal entry and exit. Cautions regarding findings include: As noted, Sy Harding’s work is no longer available. Testing many strategies on the same data introduces snooping bias, such that the best performance tends to overstate expectations. Sample size is small in terms of number of bull and bear markets, and test results therefore vary considerably for different start and stop dates. As noted, tests ignore potential impacts of timing strategies on capital gains taxes. Independently, Peter Brimelow and Mark Hulbert report in MarketWatch columns of… …10/2/15 that “Harding’s modification of the Halloween Indicator [produced] an 8.8% annualized return [since mid-2002] — 1.6 percentage points per year more than a purely mechanical application of this seasonal pattern, and 1.4 percentage points ahead of a buy-and-hold. Even better, this market-beating return was produced with 39% less risk, which means it’s even further ahead of a buy-and-hold on a risk-adjusted basis.” …4/1/15 that “Harding’s modification of the Halloween Indicator is in fourth place for risk-adjusted performance since mid-2002 out of the 91 stock-market- timing strategies the Hulbert Financial Digest has tracked over this period.” …10/1/14 that “Harding’s tweaking of the Halloween Indicator has improved significantly on the mechanical version of the seasonal pattern.
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