57 years of S&P 500
I was studying the trend line of SP-500 for the entire record period. I drew a straight line (in logarithmic scale) between the starting point and the end point of the time series. The straight line has an average return of 8%. Then I take the difference between the actual data line and the straight line I drew with some modification to preserve the first and second order statistical moments such as the average and standard deviation. So there are three lines in the above figure.
The blue line is to show the actual closing price of the SP-500 index. The green line is the straight line I drew. The red-line at the bottom of the figure is the modified difference between the actual data line and the straight line.
It is reasonable to assume the red-line has stable statistical properties such as the mean and standard deviation. Based on the modified data, the average is 111.55, the standard deviation is 33.696, and the coefficient of variation is 0.30207.
It is so easy to identify the peak of the market after the data is extended almost seven years beyond 2000. Now we can see a perfect head and shoulders with the head-top around 2000. Should we have another head and shoulders coming soon?
Another feature is the closeness of the blue-line and the green-line for the last five years. This closeness is an indication of reduced volatility of the market. I believe that the fast growth of the hedge funds might be one of the major contributors of this closeness.
It would be very interesting if some investors/traders can take the advantage of the clear cycles in red-line. We are pondering this question with the following question. What is the optimal way to take the advantage of the bounded variations/volatilities of the red-line?
The blue line is to show the actual closing price of the SP-500 index. The green line is the straight line I drew. The red-line at the bottom of the figure is the modified difference between the actual data line and the straight line.
It is reasonable to assume the red-line has stable statistical properties such as the mean and standard deviation. Based on the modified data, the average is 111.55, the standard deviation is 33.696, and the coefficient of variation is 0.30207.
It is so easy to identify the peak of the market after the data is extended almost seven years beyond 2000. Now we can see a perfect head and shoulders with the head-top around 2000. Should we have another head and shoulders coming soon?
Another feature is the closeness of the blue-line and the green-line for the last five years. This closeness is an indication of reduced volatility of the market. I believe that the fast growth of the hedge funds might be one of the major contributors of this closeness.
It would be very interesting if some investors/traders can take the advantage of the clear cycles in red-line. We are pondering this question with the following question. What is the optimal way to take the advantage of the bounded variations/volatilities of the red-line?
posted by Unknown at 6:41 PM
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