Market Health

The health of the market is a major factor in determining buy and sell signals in my system.  My system flipped the market status to "unhealthy" on Feb 23rd.  At that point, different code is used to determine the signals.  In theory, there should be more sell signals than buys.   That is certainly what we are seeing now.   The problem is that the market is acting healthy when my system thinks it should be unhealthy.

For fun, I decided to use "healthy" signals going back to the bottom on Mar 16.  Here are the results:
Mar 16: Hold
Mar 17: Buy TNA 71.28
Mar 18: Hold
Mar 21: Sell TNA 79.08
Mar 22: Hold
Mar 23: Buy TNA 78.55
Mar 24: Hold
Mar 25: Hold
Mar 28: Buy more TNA 81.78
Mar 29: Hold
Mar 30: Short TNA 86.85 (currently)

A couple things to note. Today is the first short signal since the bottom.  While that can't help me since I'm already short, it may help someone else who is long or not yet short. Confidence is higher with this signal, as it's much harder to get a short signal using the uptrending, aka healthy, rules.  The other observation is that my system is quite good as shown by the signals above if it could just do a better job of determining when the market flips back to healthy mode.  I'm quite happy with how it flips to unhealthy status, but I've never really liked using that same method for the rebound.   Perhaps there are some other options I'm going to have to research.

The first and most obvious thing to look at would be whether we are back above the 50 day moving average.  We moved above it Mar 24th.  Another alternative may be volume based.  On Mar 16, there was a huge volume spike on SPY perhaps indicating capitulation. A third option may be using a moving VWAP line in conjunction with a moving linear regression line.  I'll do some research and backtesting over the next few weeks and see what I can come up with.  As I stated in an earlier post, the transition from unhealthy to healthy has haunted me in the past (December was the most recent) and I'm sure it will happen again if something is not done to fix it.  Otherwise, I'm quite pleased with my system's performance.