Bankable ETF Strategy: Hidden Bear

Since I published the first time-based strategy, Bankable ETF Strategy: Double Up, many readers wrote me that they do not believe the stock market is going to go much higher and that the environment may drastically change in favour of the bears. They wanted to know if there is a time-based strategy that exploits the bearish price movements in the index ETFs. Here is the bearish time-based strategy that is applicable to both (SPY) and (DIA).

The Hidden Bear Strategy

Hidden Bear consists of 2 simple rules:

1. Go short on the 13th trading day every month except March, April, November and December

2. Hold the position for 5 days and exit on the 6th trading day at open

The Performance

Here is a chart of SPY with the net points gained per share by Hidden Bear since early 1993.

As a raw model, it is impressive in several aspects:

1. Profitable in both bullish and bearish environment

2. Flat, as oppose to significant drawdown, during low volatility period

3. Holding a position more than 3 days making it in compliance with the PDT rule

4. Making more than Buy-n-hold while stayed in the market 16% of the time only

When the strategy is applied onto , it is even more impressive. Following is a chart of DIA and the net points gained since 1998.

Other Thoughts

Similar to the first strategy, the entry and exit rules are not optimized. They are discovered from distribution analysis. It is very likely you can squeeze extra profit from the model by improving the rules to take into account situational conditions.

March and April are excluded because 2 strong structural events during that time, tax return filing and first quarter earnings reports, both have strong bullish bias making those months bad candidates to go short.

November and December are excluded because of the classic end of year rally bias often enforce a strong upward drift in those months.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.