Reducing Risk and Outperforming the market with Pairs / Good reading

by Zagros on September 24, 2020

Greg Troccoli,

For our Forbes readers who have been following some of trades will know we favor “Pair Trades” for out-performance in this heightened volatility.  For those of you who are not familiar with this strategy, please read our prior article .  We are seeing a lot of opportunity in the price action and out-performance in sector trends.  Yesterday at the close, one of our favorite trades, long tech (XLK) and short Financials (XLF) was up +2.43. Another is short long Health-care (XLV) and short Emerging markets (EEM) up +2.02%.  But be careful, this is not a trade to put on the page blindly, it’s not a true relative value strategy, there is not a true correlation to these pairs.  This is playing out-performance with technicals and price action.   As volatility comes in, spreads will come in as well, limiting these returns on our pair trades.   We are currently looking for pairs in todays market


Intermediate Trend (12 Weeks): Negative

Monday’s Trade: $12.49 (- .41 cents)

UPDATE: Since posting a high of $17.20, during the week of February 14, 2020, the Financial SPDR has been in a downtrend for the past six months, underperforming against most other sectors. In addition, the 100- Day Moving Average (red) Line has been negatively sloped for the past eleven weeks, implying the “crowd” is generally short this sector.  For the past eight weeks, the market is trading below the major blue horizontal support line denoted by the $13.20 region (see chart).   A weekly settlement (Friday close- since we are analyzing a weekly chart) above $13.20, is the key to attracting buyers. Four weeks ago, XLF was trading $12.77, we stated, “If one were to take a long position, at current levels, only risk down to $12.04”. Subsequently, the market traded as low as $12.00 last week, therefore, you should be flat (no position) at this juncture.

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