Guest Post: Modified Davis Method—March 2014 Update, by Frank Roellinger


Updated: Apr 24th, 2016 | Vance Harwood

It’s been about 7 months since my article on The Modified Davis Method first appeared, so it’s time for an update.  Here is the original chart updated through 3/28/14.  As before, the top (white) line is the method’s results; the yellow line is the Value Line/Russell 2000 series; the green line is the S&P 500 for reference.

Update0314

The method is still 100% long after the last buy on 11/30/12 when the Russell 2000 closed at 821.92.  Since then the ETF that tracks the Russell 2000 (IWM) is up more than 42% with dividends reinvested.

The following chart illustrates the method’s computed potential exit points since the Buy on 11/30/12.  The upper line is the weekly close of the Russell 2000 index; the lower line depicts the exit points each week.  The method has remained 100% long in the Russell 2000, despite several pullbacks and the usual plethora of predictions that the market is overvalued and cannot go much higher.

MDM-28Mar14

Additionally, the original 4% method would have exited and reentered 3 times during this rally, greatly reducing the gain compared to remaining 100% long.  Searching for thresholds other than 4% and employing the dynamically-adjusted trend line have payed off handsomely this time.

The stop was just barely missed on 02/07/14.  Since then, the stop has risen more than 23 points and is still rising.  The method’s use of breadth suggests that the final top has not been reached.  But, sooner or later an exit point will be breached, and soon thereafter, it will be reported here.

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Sunday, April 24th, 2016 | Vance Harwood
  • Mark

    I really enjoyed your post on the Modified Davis Method and would like to see the entry and exit signals generated. I’m curious to know how it handled May 2010 and August 2011.
    Thanks

  • Frank

    Hello Mark,

    I have not posted all of the trades anywhere, but here are the ones around the times you requested:

    20100219 Buy.5 631.62
    20100507 Exit.5 653.00 1.69 %

    20100514 Buy.5 693.98
    20100521 Exit.5 649.29 -3.22 %

    20100618 Buy.5 666.92
    20100702 Exit.5 598.97 -5.09 %

    20100709 Buy.5 629.43
    20100813 Exit.5 609.49 -1.58 %

    20100903 Buy.5 643.36
    20110603 Exit.5 808.13 12.81 %

    20110701 Buy.5 840.04
    20110729 Exit.5 797.03 -2.56 %

    20110826 Buy.5 691.79
    20110923 Exit.5 652.43 -2.84 %

    20111014 Buy.5 712.46
    20111118 Exit.5 719.42 0.49 %

    The “.5” annotation here means that the trade was for only 50% of the principal. The other 50% remained invested from a purchase in 2009 (and in fact is still invested). So during this time the method made an additional (open) profit of 7%.

    — Frank