Hey all,
I haven't really seen anyone try something based on the CANSLIM method for predicting S&P500 drawdowns. https://www.investors.com/how-to-invest/investors-corner/how-to-spot-stock-market-tops-track-the-distribution-days/
Without much surprise, it worked rather well (although slightly different variations can have vastly different results, they all largely predicted drawdowns.) Most importantly, most of the time, this method got out of the market before a crash (although often much too early) and entered a bit earlier as well.
Predicting Drawdowns in the SP500 using IBD distribution days
Could you explain a little bit what do the many values mean by calculating the distribution_days, such as the .25, .75, 0.5? And why you chose the 25,80, 150, 240 for SMA calculating. I've read the artical https://www.investors.com/how-to-invest/investors-corner/how-to-spot-stock-market-tops-track-the-distribution-days/ but find little hints.
Thomas
I don't actually take a SMA values, I'm looking at percent changes over a certain time period, and the exact windows are rather arbitrary and simply meant to give you different time scales.
The distribution days are calculated as -.25 per week as IBD suggests deleting a distribution day every month. A better way to have done the rally days in hindsight would be a rolling list that would store the number of rally days in the past 7-11 days, but that's why I currently have it at an eleven day time scale.
Strictly speaking the +.5 days are not part of IBD's rules, but I added them since the model tended to be out of the market for long periods of time. According to IBD rules, this is how one would calculate a rally day: "Follow-through day variables include: an index closing sufficiently above 1% on increased volume, positive behavior of leading stocks, and improved market action regarding support vs. resistance levels. The most powerful follow-through days often happen Day 4 through Day 7 of an attempted rally.
In the wake of a follow-through day, the market should continue to add gains in strong volume, with breakouts by top stocks. This is further confirmation a new uptrend is underway."
However, I wanted to be a bit more aggressive in entering the S&P as this was part of a different algorithm where I originally wanted to use it as a forward indicator to predict market tops and bottoms.
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