High, Low, Close

Analysis of the daily close  of the FTSE 100 Index and the day’s high and low. 

The following table shows the frequency with which the FTSE 100 closes within a certain percentage of the high (or low) of the day. For example, since 1985 the FTSE 100 Index has closed within 10% of its daily high 20.8% of all days, and it has closed within 1% of its low 5.6% of all days.

  10% 5% 1%
Top (%) 20.8 15.1 9.8
Bottom (%) 14.5 9.6 5.6

It’s interesting to note that for one in 10 days the index closes within 1% of its high for the day.

The following day

Continuing this analysis of where the index closes relative to the Hi-Lo range of the day, the following table shows the performance of the FTSE 100 Index on the following day.

For example, on the days when the index closes within 10% of its low for the day on average the index return is -0.005% the following day; and when the index closes within 1% of its high for the day on average the index return is 0.167% the following day.

  10% 5% 1%
Top (%) 0.111 0.132 0.167
Bottom (%) -0.005 0.001 0.013

 


The above is an extract from the Harriman Stock Market Almanac 2017.

Social Share Toolbar

FTSE 250/100 Ratio

The following chart shows the ratio of the FTSE 250 Index divided by the FTSE 100 Index since 1985. For example, yesterday’s close for the FTSE 250 Index was 18,342.1 and for the FTSE 100 Index it was 7074.3; dividing the former by the latter gives a ratio value of 2.59 (the last value plotted on the chart).

FTSE 250-100 Ratio [1985-2016]

As can be seen, the ratio fluctuated in a sideways range from 1985 to 1999. And then the great out-performance of the FTSE 250 over the FTSE 100 began (on 18 Jan 1999 to be precise).

Over the following 16 years to today, while the FTSE 100 Index increased 16%, the FTSE 250 gained 274%.

The following chart zooms in to show the FTSE 250/100 ratio for the more recent period since 21012-2016.

FTSE 250-100 Ratio [2012-2016]

Social Share Toolbar

UK equity indices returns 2016 3Q & YTD

2016 3Q

The following chart plots the performance of UK equity indices in the third quarter 2016.

UK equity index returns 2016 3Q

The data for the chart is given in the following table.

Index Rtn(%)
FTSE AIM 100 16.3
FTSE AIM All-Share 15.7
FTSE Fledgling 12.8
FTSE TechMARK Focus Index 12.0
FTSE SmallCap 11.3
FTSE 250 9.8
FTSE TechMARK All Share 8.4
FTSE All-Share – Total Return 7.8
FTSE 100 Index – Total Return 7.1
FTSE All-Share 6.8
FTSE 350 6.7
FTSE4Good UK 6.7
FTSE4Good UK 50 6.3
FTSE 100 6.1
FTSE UK Dividend Plus 5.6

2016 3Q YTD

The following chart plots the performance of UK equity indices over the first 3 quarters of 2016.

UK equity index returns 2016 3Q YTD

The data for the chart is given in the following table.

Index Rtn(%)
FTSE AIM 100 16.3
FTSE AIM All-Share 15.7
FTSE Fledgling 12.8
FTSE TechMARK Focus Index 12.0
FTSE SmallCap 11.3
FTSE 250 9.8
FTSE TechMARK All Share 8.4
FTSE All-Share – Total Return 7.8
FTSE 100 Index – Total Return 7.1
FTSE All-Share 6.8
FTSE 350 6.7
FTSE4Good UK 6.7
FTSE4Good UK 50 6.3
FTSE 100 6.1
FTSE UK Dividend Plus 5.6

Social Share Toolbar

FTSE 100 and FTSE 250 Quarterly Review – September 2016

After market close on 31 August 2016 FTSE Russell confirmed the following changes to the FTSE 100 and FTSE 250 indices. The changes will be implemented at the close Friday, 16 September 2016 and take effect from the start of trading on Monday, 19 September 2016.

FTSE 100

Joining: Polymetal International [POLY]

Leaving: Berkeley Group [BKG]

FTSE 250

Joining: Berkeley Group Holdings [BKG], GVC Holdings [GVC], Hunting [HTG]

Leaving: Polymetal International [POLY], Pendragon [PDG], Circassia Pharmaceuticals [CIR]

Social Share Toolbar

FTSE 100 for US dollar investors in 2016

The following chart plots the FTSE 100 Index for the period 1 January 2016 to 11 July 2016. It also plots the Index priced in US dollars (i.e. it shows the returns a US dollar investor would see over this period).

FTSE 100 v FTSE (USD) [Jan-Jul 2016]

Today, the FTSE 100 Index closed at 6682, an increase of +9.7% from 1 January 2016.

Adjusted for the GBPUSD rate, the FTSE 100 closed today at 5886 (in dollar terms),  a decrease of -5.7% on the start of the year.

 

 

Social Share Toolbar

UK equity indices returns 2016 2Q & 1H

2016 2Q

The following chart plots the performance of UK equity indices in the second quarter 2016.

UK equity index returns 2016 2Q

 

The data for the chart is given in the following table.

Index Rtn(%)
FTSE 100 Index – Total Return 6.5
FTSE 100 5.3
FTSE4Good UK 50 5.0
FTSE All-Share – Total Return 4.7
FTSE 350 3.7
FTSE All-Share 3.5
FTSE4Good UK 3.5
FTSE TechMARK All Share 2.9
FTSE AIM 100 1.2
FTSE TechMARK Focus Index 1.0
FTSE AIM All-Share -0.4
FTSE UK Dividend Plus -1.5
FTSE SmallCap -1.6
FTSE Fledgling -2.2
FTSE 250 -3.9

 2016 1H

The following chart plots the performance of UK equity indices in the first half 2016.

UK equity indices 2016 1H

The data for the chart is given in the following table.

Index Rtn(%)
FTSE 100 Index – Total Return 6.62
FTSE All-Share – Total Return 4.27
FTSE 100 4.2
FTSE 350 2.27
FTSE All-Share 2.07
FTSE4Good UK 50 1.99
FTSE4Good UK 0.84
FTSE TechMARK All Share -1.17
FTSE UK Dividend Plus -2.32
FTSE TechMARK Focus Index -2.85
FTSE Fledgling -3.41
FTSE SmallCap -3.52
FTSE AIM 100 -4.09
FTSE AIM All-Share -4.19
FTSE 250 -6.65

 

Social Share Toolbar

FTSE 100 around FOMC announcements

The Federal Open Market Committee (FOMC) is the monetary policy-making body of the U.S. Federal Reserve System. Since 1981 the FOMC has had eight scheduled meetings per year, the timing of which is quite irregular, The schedule of meetings for a particular year is announced ahead of time [calendar here].

Starting in 1994, the FOMC began to issue a policy statement (“FOMC statement”) after the meetings that summarised the Committee’s economic outlook and the policy decision at that meeting. The FOMC statements are released around 14h15 Eastern Time.

Before 1994 monetary policy decisions were not announced; investors therefore had to guess policy actions from the size and type of open market operations in the days following each meeting. But since 1994 there has been far greater transparency over both the timing and the motivation for monetary policy actions.

This has led to a number of academic papers investigating the influence of these FOMC statements on financial markets. One such paper[1] found large average excess returns on U.S. equities in the 24-hour period immediately before the announcements (an effect the paper called the “Pre-FOMC Announcement Drift”). In other words, equities tended to be strong just before the FOMC statement. Further, these excess returns have increased over time and they account for sizable fractions of total annual realized stock returns. Quantifying this the paper says,

[since 1994] the S&P500 index has on average increased 49 basis points in the 24 hours before scheduled FOMC announcements. These returns do not revert in subsequent trading days and are orders of magnitude larger than those outside the 24-hour pre-FOMC window. As a result, about 80% of annual realized excess stock returns since 1994 are accounted for by the pre-FOMC announcement drift

A quite extraordinary finding!

And the relevance to UK equities is…?

The above quoted paper also found that such pre-FOMC excess returns occurred also in major international equity indices.

Let’s see if that is the case.

The following chart shows the average daily returns for the FTSE 100 Index for the seven days around the FOMC statements for the period 1994-2014. The seven days cover the three days leading up to the statement, the day of the statement itself A(0), and the then the three days after the statement. Given that the FOMC statement is usually released around 18h15 GMT (i.e. after the UK market has closed), A(0) can be taken as occurring in the 24 hours before the statement.

FTSE 100 around FOMC announcements

The result is quite clear, the average daily return for A(0) is 0.33%, over ten times greater than the average daily return on all other days. This does support the claim in the above referenced paper. It might also be interesting to note the weakness in equities on the day prior to the FOMC statement.


[1] David O. Lucca, Emanuel Moench, “The Pre-FOMC Announcement Drift” (2013)

Further articles on the Fed Rate and FOMC announcements.

Social Share Toolbar

FTSE 100 and FTSE 250 Quarterly Review – June 2016

After market close on 1 June 2016 FTSE Russell confirmed the following changes to the FTSE 100 and FTSE 250 indices. The changes will be implemented at the close Friday, 17 June 2016 and take effect from the start of trading on Monday, 20 June 2016.

FTSE 100

Joining: Hikma Pharmaceuticals [HIK]

Leaving: Inmarsat [ISAT]

FTSE 250

Joining: Ascential [ASCL], CMC Markets [CMCX], Countryside Properties [CSP], CYBG [CYBG], Hill & Smith Hldgs [HILS], Metro Bank [MTRO], Smurfit Kappa Group [SKG]

Leaving: Highbridge Multi-Strategy Fund [HMSF], Interserve [IRV], Jimmy Choo [CHOO], Lookers [LOOK], Melrose Industries [MRO], Northgate [NTG], Ophir Energy [OPHR]

Social Share Toolbar

World’s Simplest Trading System

Here’s the system:

At the end of every month,

  • if the index is above its 10-month simple moving average: the portfolio is 100% in the market
  • if the index is below its 10-month simple moving average: the portfolio is 100% in cash

 And that’s it.

So, if we take the FTSE 100 Index as an example, if at the end of a month the FTSE 100 is above its 10-month simple moving average then either,

  • the portfolio moves into the market by buying, say FTSE 100 ETFs, (these will be the easiest instrument for most investors, but equally futures, CFDs or spread bets could be used), or
  • nothing needs to be done if the portfolio is ready in the market.

Conversely, if at the end of a month the FTSE 100 is below its 10-month simple moving average then the portfolio sells the ETFs and moves 100% to cash; if it is already in cash then nothing is done.

[NB. OK, it's possible that this isn't absolutely the simplest trading system imaginable, but apart from buy and hold it is unlikely there are many systems much simpler than this one!]

The following chart illustrates such a portfolio for the FTSE 100 Index since 1995. The diamond markers indicate the decisions made at the end of each month whether to be in the market (green diamond) or in cash (red diamond).

SMA (10M) Trading System

Roughly, one can see that the system kept the portfolio in the market in uptrends and out of the market (in cash) when the market fell.

This trading system is well-known in the US, what we will look at here is:

  1. If the trading system can be profitably applied to the FTSE 100 Index.
  2. Whether 10 months is the optimum parameter for the moving average (or would a 5-month, or 15-month, moving average produce superior results)?

Terminology: we will use SMATS(10) to refer to the 10-month simple moving average trading system. And SMATS(5) for the trading system using the 5-month simple moving average etc. Below we will analyse the trading system for 14 different parameters of the simple moving average, i.e. from SMATS(4) to SMATS(16).

Performance analysis

First, let’s look at the overall profitability of SMATS.

Profitability

The following chart plots the values of the SMATS portfolios for the 14 different simple moving averages (i.e. 4-month to 16-month). As a benchmark the FTSE 100 is added (i.e. this is the value of a buy and hold FTSE 100 portfolio). All values were re-based to start at 100.

SMA Trading Systems (4M-16M) [1995-2016]

Some observations:

  1. By the end of the 20-year period all the SMATS portfolios had out-performed the FTSE 100 – except SMATS(5).
  2. By the end of the period, SMATS(10) had the highest value; although it can be seen that it wasn’t consistently the most profitable throughout the whole period.
  3. For the first six years (up to August 2001) all SMATS under-performed the FTSE 100. This was caused by the market volatility in 1998 and 2001, which caused the portfolios to be whipsawed in and out of the market.

The following chart summarises the final portfolio values in 2016 after running the trading system from 1995.

SMA trading system values [2016]

By 2016 the STATS(10) portfolio had the highest value of all portfolios at 269; the FTSE 100 buy and hold portfolio a value of 199.

Risk

We’ve looked at profitability, let’s now consider the risk incurred by each portfolio. We’ll use volatility as a (fairly standard) proxy for risk.

The following chart shows the volatility of the portfolios over the 20-year period.

SMA trading system volatility [1995-2016]

Not surprisingly the FTSE 100 had the highest volatility. The volatility of the SMATS portfolios was less due to the fact they were in cash for part of the time; broadly their volatility increased as the moving average month parameter increased.

The Sharpe Ratio combines returns with volatility to provide a comparative measure of profitability per unit of risk incurred. The ratio’s purpose is to answer questions of the form: is the profitability of a strategy justified by the risk incurred, compared to another strategy?

The following chart plots the Sharpe Ratio for the 14 portfolios. (The benchmark for the Sharpe Ratio calculation was the FTSE 100 Index.)

SMA trading system Sharpe Ratio

SMATS(10) had the highest (i.e. the best) Sharpe Ratio, although close behind were SMATS(14) and SMATS(15).

Max Drawdown

Maximum Drawdown decribes the maximum loss a portfolio suffered from a previous high value. For example, in this test SMATS(10) had a max drawdown value of 22.8%. This means that over the 20-year test period the portfolio was at most 22.8% under water (from a previous high).

Frankly, max drawdown has more significance for strategies that employ leveraged products (e.g. futures), as drawdowns incur realised losses as margins have to be paid. By contrast in the case of unleveraged equities or ETFs, drawdowns incur unrealised losses. Having said that, unrealised losses can still be uncomfortable and can have a major adverse psychological impact on the investor or trader.

The following chart shows the max drawdown values for the 14 SMATS portfolios and the FTSE 100 Index.

SMA trading system Max Drawdown

Here the SMATS(10) portfolio only had a middling relative score. The best portfolios (i.e. those with the lowest max drawdowns) were: SMATS(7), SMATS(14), SMATS(15), and SMATS(16).

Trade frequency

The following chart shows the average number of trades for the year for each portfolio. For example, over the 20-year test period SMATS(10) portfolio traded 36 times, which is an average of 1.7 times a year.

SMA trading system Average Trades-yr

As would be expected the number of trades decreases as the length of the moving average month parameter increases. In other words, systems get whipsawed less with longer moving averages.

The profitability figures above did not include transaction costs, but with the systems averaging under 2 trades per year the transaction costs would not be significant.

Summary of analysis

The following table summarises the above analysis. The values are colour-coded with green being the best value through to red being the worst for each respective analysis.

SMA trading system analysis (FTSE 100, 1995-2016)

 Conclusion

  1. This simple moving average trading system did work for the FTSE 100 (i.e. it out-performed the FTSE 100 Index) over the 20-year period.
  2. The best performing portfolio was indeed SMATS(10), i.e. the trading using the 10-month simple moving average. It had the highest absolute profitability and also the highest Sharpe Ratio. After SMATS(10), the best portfolio was the SMATS(14), followed by SMATS(15).
Social Share Toolbar

Days of the week

We last looked at the performance of the FTSE 100 Index on the days of the week in September 2014. Time to see if anything has changed.

Longer-term analysis

First, to review how the Index has performed on the different days of the week over a range of periods.

The following chart shows the average returns of the FTSE 100 Index for the five days of the week over the periods 1984-2016, 2000-2016 and 2012-2016. For example, since 1984 the Index has fallen by an average 0.025% on Mondays.

Day of the week performance of FTSE 100 - average return

Broadly, a similar profile of behaviour can be seen over the three periods. Namely, the Index is weak on Mondays and Wednesdays and relatively strong on Tuesdays, Thursdays and Fridays. The weakest day is obviously Monday, while the strongest day is Tuesday (this profile has been particularly strong in the last four years).

It can be observed that the strength of the market on Fridays has been steadily declining in the three periods shown here.

The following chart is similar to the above except instead of average returns it show the proportion of days seeing positive returns. For example, since 1984 the Index has risen on 49.7% of Mondays.

Day of the week performance of FTSE 100 - positive

The profile seen here is similar to that seen in the first chart. The weak day again is Monday, although here Thursday is relatively stronger.

So, that’s the longer term, let’s look now at the behaviour so far in 2016.

2016

The following chart shows the average returns of the FTSE 100 Index for the five days of the week over the period Jan-May 2016.

Day of the week performance of FTSE 100 [2016] - average return

As for the longer term, Mondays are still weak. However, previously strong Thursday is now the weakest day of the week. So far this year it is Friday that has seen the highest average day returns.

The following chart shows the proportion of positive return days for each day of the week.

Day of the week performance of FTSE 100 [2016] - positive

This chart reinforces the observation that Mondays and Thursdays have been weak so far in 2016. But the day with the most positive day returns has been Wednesday - which arguably can allow it to claim the strongest day of the week crown so far in 2016.

The following chart shows the cumulative performance of the Index for each respective day of the week. For example, the FTSE 100 Index has a cumulative return of 6.6% for all Fridays so far in 2016.

Cumulative performance of FTSE 100 by day of the week [Jan-May 2016]


Further articles on the Day of the Week Effect.

Social Share Toolbar