While it seems the S&P has hardly pulled back at all since the March lows, one market that has made it the entire time without a single close below the 10-day moving average is Singapore. EWS has now closed above its 10-day moving average for 25 days in a row. When a stock or ETF spends an extended amount of time on one side of a moving average it creates what I refer to as a “time stretch”. I’ve discussed time stretches on the blog before but not for quite a while.
When a time stretch gets large, such as the current 25-day 10ma time stretch for EWS, you can often expect a move back to the other side of the moving average in the near future. I have found time stretches to be useful in system building.
To demonstrate, looking at the current EWS situation I set up the following criteria among my list of about 115 liquid ETF’s. (This list excludes all inverse and leveraged ETF’s.)
1) ETF must have closed above its 10-day ma for at least 25 days.
2) Today it closes at the highest level of the upswing.
Selling short under those conditions and then covering on a close below the 10-ma provided the following results over the last 10 years across my list of ETF’s:
% Wins: 79%
Avg Win: 1.8%
Avg Loss: -2.1%
Avg Trade: 1.0%
As you can see, although the concept is simple, the results can be quite powerful. Traders may want to consider including time stretches in their bag of tricks. I use them for a few systems tracked in the Gold members section of the website and in Quantifiable Edges Subscriber Letter.