S&P500 Materials: Using year low to execute a trend-following strategy

In this analysis we study a certain behaviour of the the field “Materials” in the SP500 index.

Since 2010, the S&P500 Index has been on a fairly steady upward trend, as we can see from the performance of its ETF.

Figure 1. Figure shows the performance of the S&P500 ETF (source: https://www.tradingview.com/chart/fZxKlgPU/?symbol=CBOE%3ASIXB)

Following the trend, we will try to ride the trend through the individual stocks that make up the trend.

The first step when opening a position is to analyse the direction of the market and decide whether to buy or sell following the prevailing trend. As opposed to jumping solely on the trend, with a simple study we will aim to predict specific entry price levels.

Therefore, the market entry will not be the same after the trend has “correctly” established itself, in this way trying not to give up the initial breakthrough profit.

For all stocks in the Materials sector we will take the lowest prices hit year on year since 2010 as a reference point. We will subsequently use these lows as supports. The supports identified in this way act as entry points for buying the stock. Specifically, if the price of a stock hits the low of the previous year we will use that price level to enter the market and hold the stock until the end of the year.

The results of this research are summarised in the table below.

Symbol	Avarage Return	Win Ratio	Total Trades
FCX	41,3%	0,57	7
MOS	5,3%	0,71	7
NUE	13,3%	0,67	6
ALB	29,1%	0,60	5
DD	9,6%	0,60	5
EMN	17,9%	0,60	5
IP	13,5%	0,60	5
LYB	19,8%	1,00	5
NEM	-12,2%	0,40	5
SEE	6,8%	0,60	5
AMCR	-11,9%	0,67	3
CF	-10,5%	0,00	3
FMC	13,6%	0,67	3
LIN	25,8%	0,67	3
MLM	19,4%	0,67	3
PKG	35,8%	0,67	3
PPG	22,2%	1,00	3
VMC	17,2%	0,67	3
AVY	35,6%	0,50	2
IFF	3,9%	1,00	2
APD	14,8%	1,00	1
BLL	28,6%	1,00	1
CE	47,9%	1,00	1
ECL	52,9%	1,00	1

Table 1. The table lists the stocks in the “Materials” sector in the S&P500 with the main data for the purposes of our analysis.

Analysing the table, the following considerations can be made:

2/24 stocks have a WR below 50%;
1/24 have a WR of 50%;
21/24 have a WR above 50%;
57/87 osservazioni con un wr 66%;
Only 3/24 have a negative return;
Out of 87 observations, the average return is 18,3%.

This investment strategy identifies the yearly lows as supports which will then be used as entry price levels. It is a strategy supported by good data. The end of the year as the closing date is only an indication: the holding period of the shares can be optimised.