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Archive for December 20th, 2008

Geometrical interpretation of partial correlation
Image via Wikipedia

I’ve updated the ETF correlation tracker tool today based on reader feedback.  It now includes 10,50,120 and 260-day correlations on our ETF basket.  Michael over at MarketSci sent me back a version that converted it to a heat-map where it is colored by percentage correlation, but he did it in Excel 2008 – I’m including a screenshot below.  If anyone has any idea how to do this in earlier versions of Excel, I’d love to hear from you.

correlation-heat-map

ETF Correlation Tracker – 10 day (CSV)

ETF Correlation Tracker – 10 day (HTML)

ETF Correlation Tracker – 50 day (CSV)

ETF Correlation Tracker – 50 day (HTML)

ETF Correlation Tracker – 120 day (CSV)

ETF Correlation Tracker – 120 day (HTML)

ETF Correlation Tracker – 260 day (CSV)

ETF Correlation Tracker – 260 day (HTML)

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Wrapping up (184/365)
Image by Cellach via Flickr

I am sitting up here on a Friday night wrapping presents and waiting for some sign that my wife will go into labor (no sign yet – the baby is late!), and we’ve gotten about 5 inches of snow in the past 3-4 hours.  So I have had some time to focus on the state of the market.

One thing I like to look at to get a sense for how the overall market is doing is to look at different ratios.  I’ve setup a screen on my system that shows me a bunch of these different screens.

ratios

So what does this show?  A few things jump out at me: Small cap stocks (represented by IWM) are outperforming large cap stocks (represented by SPY).  And we’ve got the Nasdaq (represented by QQQQ) outperforming large cap (again represented by SPY).  Bonds (represented by TLT) continue to outperform stocks (SPY).  Finally, we’re seeing foreign developing markets (represented by EEM) outperforming large cap stocks (SPY).

What I would like to see, based on history, is small caps outperforming large cap stocks.  I would also like to see the Nasdaq outperforming large cap stocks.  So that’s two good aspects of the recent market activity.  But one aspect of this chart does give me pause.  I’ve been working on some studies of small cap growth (represented by IWO) vs. small cap value (represented by IWN).  In these studies, I have found that the market tends to do better (a lot better in many cases) when growth is outperforming value.  This, combined with the fact that Gold (represented by GLD) continues to outperform large cap stocks gives me some measure of pause.

skills-index

The Skills Index is still on a buy signal, and I have been making money on this by being in small cap stocks – particularly UWM.  I will be watching for growth to outperform value in the next week before committing more money to the market.

Other concerns: that sure looks like a rising wedge on lowering volume.

I have also almost completed work on the changes I outlined to my existing systems (MOMO1 and MR1) – I’ll be posting updates about those system very soon – although if the baby decides to come tonight (which would be perfect since the roads are problematic at the moment), it may take more than a few days.

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