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Market Measures

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Equity Indices: Fading Strength and Weakness

Market Measures

Tuesday’s Market Measures segment looked at strength and weakness in equity index ETFs.

We found that the longer the observation period, the less likely we saw continued strength in any given index.

How has the contrarian approach of selling the strongest and buying the weakest index ETF worked historically?

Study
  • DIA, IWM, QQQ, SPY
  • Short prior month's strongest ETF
  • Long prior month's weakest ETF
  • 3 Management Scenarios
  • Managed for a net gain of 1%, or held for 2 months
  • Managed of a net gain of 2%, or held for 2 months
  • Held for 2 months
Results

Managing these positions confirms our contrarian stances, especially with highly correlated pairs.

The reverse trade, buying strength and selling weakness did not work out in the study.

Tune in for Tom and Tony's in depth analysis of all the metrics!

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