Mkt neutral equity strategy


65 10
I'll be brief and fill in the details as and when. It's more to test a hypothesis than anything else. Stock universe = SP500, use SPY to beta hedge. Signals are generated at the close, orders sent to open/close positions at the Open of the next session.

Todays Trades:

MDLZ Short 306 @ 32.5 STOP 33.09 TGT 29.2
STZ Short 183 @ 54.5 STOP 56.11 TGT 50.48
WM Short 232 @ 43.12 STOP 44.05 TGT 39.86
AMZN Long 34 @ 295.68 STOP 190.90 TGT 309.05

Resulting beta hedge = long 50 SPY @ 169.58
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65 10
Right, in between watching England finish off the Aussies and waiting for my stew to cook, I'll put some flesh on the bones of what I'm trying to test.

The easiest way to give you an idea is to put up a chart of the kind of setup I'm looking for:

Basically, I'm fading moves that breach into new highs. The setup should be as "clean" as possible, and - as yet - I'm not looking at any of the action as it goes through the level. I have seen moves like this hundreds and hundreds of times, and I am just playiing with the criteria so far.

I said that I am testing something of a hypothesis, and that is the premise that stocks (anything) where the mkt is positioned too long (short) won't go higher (lower) with any gusto. I'm not explaining it very well but I hope you get the gist.

For example, looking at the chart of HRL I have attached, my hypothesis is that the stock will go lower more aggressively that it will go higher. There will be longs that are trapped, and if these are squeezed, the stock could start to shift.

It's this basic idea that I'm looking to test. Because I don't want to say whether the stock will or will not go up or down, I'm hedging the beta. If I've lined my ducks up properly, the "alpha" in this strategy will be picking stocks who move faster in one direction than the other, and positioning accordingly. Then just let the mkt do what it does.

The retracement levels on the chart are simple +/- 25% of the marked range. I'll close the position if the stock extends to +25% of the marked range, and take profits if it drops 75% - so for HRL, my entry is 43.2, STOP 44.64, TGT 38.9. I will also close any residual Beta simultaneously.

I'll look through some charts to show various setups and trades I'm looking to capture, and do my best to answer questions.


  • HRL.png
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65 10
Here is another setup that I am keen to test: after an obvious uptrendm the stock retraces. The next swing high does not breech the prior level, so what I am looking to do here is to buy it as it makes a new low.

e,g, Buy 194.6, STOP 182.48 TGT 230.99 and hedge the beta with SPY.


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