I found a recent post by Woodshedder on the behaviour of markets after 200 day highs and 200 day low absolutely fascinating. Well worth a read.
I was interested in this conclusion:
"The market making new 200 day highs is carried by its own momentum. The momentum allows the market to shrug off bad data and investor fear and uncertainty."
It got me thinking...could this provide some sort of long term trend filter?
It seems so.
Buy & Hold (no divided adjusted data or return on cash)
Buy only if it has been less than 101 days since a 200 day high.
Buy only if it has been over 100 days since a 200 Iday high.
I applied this to different markets over various time frames as follows:
The upshot appears to be that in general terms, if the market is going up and making 200 day highs, it is more likely to carry on. Logicial really but, its still good to see the how the theory plays out in practice. At the very least, extended periods without 200 day highs can lead to protracted volatility where reduced position size or cash could be king.