< BACK TO ALL REPORTS

Backtest Engine Scans I Have Known and Loved - The SPY % > 50-day MA Edition (Part II)

Jay Kaeppel
2021-06-11
This is Part III of a 3-part series this week highlighting useful Backtest Engine Scans. Please note that these scans are not necessarily presented on a "timely" basis. The goal is two-fold: 1.) To help you learn more about the Backtest Engine and its potentially powerful uses and 2.) To help you build an arsenal of scans that may ultimately prove to be very useful at just the right time

Sometimes the same indicator can be used in different ways. This is often due to the non-intuitive quirk of the stock markets that:

  • Deeply oversold can at times be bullish for stocks
  • Strongly overbought can ALSO at times be bullish for stocks

In this piece, we will look at using the SPY % > 50-day MA indicator as a means of generating an oversold signal. As the name implies, this indicator measures the percentage of stocks held by SPY that are currently above their respective 50-day moving average.  

SPY % > 50-DAY MA

We will attempt to use this measure as an oversold indicator for this test, intended to help us buy on weakness. In essence, we are looking for a sign of a washed-out market - one that has suffered so much widespread damage that it (hopefully) has nowhere left to go but up. 

By clicking this link and then clicking "Run Backtest" you can run the following test:

  • We look at a 10-day moving average of the SPY % > 50-day MA indicator 
  • We look for a 10-day moving average to cross below 10 (i.e., 10%)

In plain English, we are looking for a day when over the past 10 trading days, on average, no more than 10% of the stocks held by ticker SPY are above their respective 50-day moving averages.

The chart below displays the signals.

The figure below displays a summary of results 1 week to 1 year after each signal. The results are consistently favorable, though not perfect.

Note that:

  • For the first 2 weeks, the Win Rate was only 50% (so it might make sense to look for some confirmation before acting on the signal)
  • The 2-month and 6-month Win Rate is 83%
  • The 1-year Win Rate is 100%
  • The 6-month Median return is +17.82%
  • The 1-year Median return is a powerful +28.02%

The bottom line is this: The signal from this indicator may at times be a little early, and some further choppiness is a definite possibility. However, given the 6-month and 12-month results, investors should definitely be looking to play the bullish side of the market after this "washed out market" signal occurs.

Now let's look at how you can save this scan (or any scan) so that you will automatically be alerted when it gives a signal.

You can do this by:

  • Clicking "Add to Favorites"

  • Typing "SPY % > 50-day MA 10-day average crossed below 10"

  • Then click "Save Favorite"

These steps will add this particular scan to your list of Favorites. Anytime you enter Backtest Engine, your Favorites will be listed at the bottom as per below.

More importantly, any active Saved scan is listed at the bottom of your Evening Digest email. You can go to My Website Preferences under My Account to make sure you get those (they are on by default).

Sorry, you don't have access to this report

Upgrade your subscription plan to get access
Go to Dasboard