In a recent article I wrote about an indicator that I read about somewhere that I had written down only as “MVCI”. Well, thanks to alert reader Gary, I have come to learn that I read about in the March 2013 issue of one of my favorite magazines, “Technical Analysis of Stocks and Commodities.”
MVCI stands for Modified Chartmill Value Indicator (if you try to say that three times fast you will come to learn why someone had the good sense to shorten it to MVCI. But I digress). I don’t know if he invested the indicator or not, but the article (actually it was a series of 3 articles) was written by Dirk Vandycke. So kudos to him.
The first article was in the January 2013 issue which would have come out sometime in December 2012. So let’s take a look at “real-time” performance since then. First a quick (“quick” in this instance is roughly defined as “approximately 256 steps and calculations, give or take”) review of how MVCI is calculated.
The MVCI Indicator Calculations
OK, what follows is a list of a fairly lengthy set of calculations. If you are not a “numbers geek” you might consider skipping down to the actual results.
A = Daily High
B = Daily Low
C = Daily Close
D = 200-day moving average of daily closing prices
E = Daily True High
F = Daily True Low
G = Daily True Range (E-F)
H = Average Daily Price (A + B) / 2
I = 15-day Average of H
J = 15-day Average of G
K = MVCI = (C-I) / (J * Square Root of 2))
L = Buy Signal Cutoff Value
M = # days to hold a long position
In (slightly long-winded) English, the indicator is calculated by:
1) Subtracting the 15-day average of the average daily price (defined as( [high]+[low]/2)) from today’s closing price, and dividing that result by;
2) The 15-day average of the Average True Range times the square root of 2
The default value for variable L is -0.51. The default value for M is 22 days.
A “Buy Signal” occurs when:
1) The closing price for SPY is above its 200-day simple moving average AND;
2) The MVCI value for that day is -0.51 or less. So when a buy signal occurs the trader buys SPY and holds it for 22 trading days.
If MVCI drops below -0.51 during these 22 days then the 22 day holding period starts again at 22, i.e., positions can be held for longer than 22 days.
MVCI Real Time
For this test we will start with the first buy signal after the article would have appeared. That signal occurred on 12/28/2012. We will assume a long position in SPX when the indicator is on a buy signal and that no interest is earned while out of the market. We will also compare these results to buying and holding SPX.
A graph showing the percentage growth of an initial equal investment in both the “system” I jut described and SPX buy-and-hold appears in Figure 1. This chart extends from 12/28/2012 through 3/6/2015.Figure 1 – % Growth using MVCI (blue) versus SPX Buy-and-hold (red) since 12/28/12
For the record:
MVCI % growth = +62.2%
SPX % Growth = 51.7%
Also, it is worth noting that at 11 buy signals (FYI: a “new” buy signal that occurs before an existing 22 day holding period is up is NOT considered a new signal, only an extension of the existing signal. In other words, there were far more than 11 dates that triggered a “Buy” signal, but for our purposes they simply extend the existing position another 22 trading days) since 12/28/2012 have generated a profit.
So can we draw any conclusions regarding these of MVCI? Maybe not. Other than to say “so far so good” or “I like what I see.” In any event, it looks to me like there my be something “there.”
And in the world of trading, “There” can be a pretty good place to be.