SMH vs. XRT on AUG. 13, 2010

One of those favorable short-term reversal opportunities ( see Pairs Trading (ETFs) ) may be provided on today’s session (August 13, 2010), assumed one would’ve bought the pair SMH vs. XRT (Semiconductor HOLRDS. vs. S&P 500 Retail SPDR) on close of the last session (August 12, 2010).

During the last couple of sessions, the SMH more or less posted a waterfall decline, losing -2.44%, -2.47% and -1.81% (adjusted for dividend and cash payments) on the last three trading days, while the XRT out-performed the SMH by a wide margin.

The table below shows the respective performance metrics (since 01/01/2007 due to the XRT‘s inception date in 2006) for the pair SMH vs. XRT , assumed one would’ve bought (means went long SMH and sold short XRT in the right proportion) on close of a session when,

• the SMH under-performed the XRT by at least -2.25% on the respective session, and the 4-day CCI of the pair closed  at -133 (lowest level possible)
• the SMH posted an intraday low of at least -3.0% below the previous session’s close on the last three consecutive sessions,
• the SMH under-performed the XRT by at least -2.25% on the respective session, and under-performed XRT on the last three consecutive sessions,
• the SMH under-performed the XRT by at least -2.25% , and the QQQQ by at least -1.0% on the respective session,
• the SMH under-performed the XRT by at least -2.25% on the respective session.

It is especially interesting to note that historically there is a significantly above-average probability (and odds as well) that the SMH will turn the tables and out-perform the XRT on the then following session (like today), regularly by a wide margin. Since 01/01/2007 there were 17 occurrences where the SMH under-performed the XRT by at least -2.25%, and on 15 out of those 17 occurrences the SMH out-performed the XRT on the then following session for a median winning trade of almost +1.00%, while the SMH never under-performed the XRT by more than -0.70%.

to be continued …

Successful trading,
Frank

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Disclaimer: Long SMH and short XRT at time of writing.

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.