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Performance Update of Weekly Dow 30 Stocks Mean-Reversion Strategy

In the last two weeks the S&P 500 has fallen 5.1%. Our DOWWMR mean-reversion strategy in weekly timeframe is down 3.5%.  Year-to-date the strategy is gaining 10.4% versus 4.8% for S&P 500 total return.

Our weekly mean-reversion strategy for Dow 30 stocks, DOWWMR, is based on a formula from probability theory that models price action dynamics. The strategy trades long-only Dow 30 stocks in the weekly timeframe with equal allocation. A maximum of 20 open positions are held at any given time. Positions are entered and exited at the open of the first day of the week. The strategy has a mechanism that avoids bear markets. Based on backtests, the strategy had only three down years since 2000 and 2008 was down -2.4% Maximum drawdown was -12.9% in 2011.

Below is the equity curve of the strategy ($0.01 per share commission) since 01/2000:

Below is the drawdown profile of the unleveraged strategy:

Year-to-date, maximum drawdown of the strategy is -5.4% versus -10.1% for S&P 500 total return buy and hold.

The DOWWMR strategy outperforms S&P 500 buy and hold on both absolute and risk-adjusted basis year-to-date.

We are cautiously optimistic about the future performance of this strategy because it is not data-mined but based on a sound hypothesis about price action dynamics and this is one reason it is included in our weekly Premium Signals report.


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Charting and backtesting program: Amibroker

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