SPY Breakout/Breakdown Signal Usefulness

A subscriber asked about a tactic employed in some strategies wherein a new X-day high (breakout) triggers a buy and a new Y-day low (breakdown) triggers a sell. Specific X:Y values requested are 55:20, 100:20, 200:20, 100:50 and 200:100. To investigate, we apply this tactic to SPDR S&P 500 (SPY) over its entire history, using unadjusted daily closes to identify breakouts/breakdowns and dividend-adjusted prices to calculate returns. We focus on percentage of days in and out of SPY and average daily return, standard deviation of daily returns and daily return/risk (average daily return divided by standard deviation of daily returns) when in SPY and out of SPY. We also look at number of switches into and out of SPY. We consider execution of trades at the same daily close as the signals and at the next open. Using daily unadjusted and dividend-adjusted SPY opening and closing prices from the end of January 1993 through August 2022, we find that: (more…)