Exxon Mobil Corporation (NYSE:XOM) : Technical Bearish Momentum Trigger
Date Published: 2019-05-27
DisclaimerThe results here are provided for general informational purposes from the CMLviz Trade Machine Stock Option Backtester as a convenience to the readers. The materials are not a substitute for obtaining professional advice from a qualified person, firm or corporation.
PrefaceUsing charts and, with them, technical analysis, is the most common form of financial back-testing. It is, at every step, using historical data and trying to draw conclusions from the patterns in the past to extrapolate them into the future. So if you use charts, it's time to use a pattern recognition engine to be robust.
After rigorous testing over the periods from 2009-2019 and 2007-2009 (the period that includes the Great Recession) all of which spanned over 100,000 back-tests, today we demonstrate the technical conditions that have provided a strong short-term bearish momentum trigger for Exxon Mobil Corporation (NYSE:XOM) and broadly speaking, the constituents of the Nasdaq 100.
But, in this dossier, we extend it to put spreads, looking to reduce the initial outlay of the trade and to increase the win rates.
LogicThe goal is to create a portfolio of option trading backtests with alerts attached to them, so we don't have to watch the market all day, but rather Trade Machine is the work horse to notify when the ideas become actionable.
Finding these patterns in Exxon Mobil Corporation should be straight forward.
The Bearish Option Trade with Technical Analysis and Moving Averages in Exxon Mobil Corporation (NYSE:XOM)We will examine the outcome of going long an out-of-the-money put spread (strike price is set to long the 40 delta and short the 25 delta), in options that are the closest to 14-days from expiration (using calendar days). But we follow three rules:
* Never Trade Earnings
Let's not worry about earnings. Here it is, first, we enter the long put spread.
* Use a technical trigger to start the trade, if and only if these specific items are met.
* The day that the stock crosses below the 200-day simple moving average (SMA) means that the stock has downward momentum and is in technical failure.
* Stock price is also below the 50-day SMA -- further evidence of a technical breakdown through the moving averages.
* RSI (using 20-days) is above 30, so the stock isn't over sold
Here it is in an image from Trade Machine -- only focus on the settings where the filter is turned to "on.":
You can set an alert in Trade Machine®, which will track all of these moving parts for you, and message you when it triggers. In fact, you can do this with a portfolio of stocks for a portfolio of bearish and bearish triggers. Let Trade Machine do the work for you -- there's no need to stare at the screen.
* Finally, we set a very specific type of limit:
* Use a 60% limit and a 60% stop.
At the end of each day, the back-tester checks to see if the long spread put is up 60% or down 60%. If it is, it closes the position.
OPTION BACKTESTER RESULTS - TECHNICAL ANALYSISHere are the results over the last five-years in Exxon Mobil Corporation:
The mechanics of the TradeMachine® are that it uses end of day prices for every back-test entry and exit (every trigger).
Setting ExpectationsWhile this strategy had an overall return of 598%, the trade details keep us in bounds with expectations:
➡ The average percent return per trade was 61.8% for each 14-day period.
Checking the Moving AveragesYou can check to see the values of all the moving averages discussed above with real-time daily prices, including live after hours prices, for XOM by viewing the Pivot Points tab on www.CMLviz.com.
Next StepsApply your skills beyond drawing lines on one chart at a time -- use pattern recognition. You can do this.
Past performance is not an indication of future results.
Trading futures and options involves the risk of loss. Please consider carefully whether futures or options are appropriate to your financial situation. Only risk capital should be used when trading futures or options. Investors could lose more than their initial investment.
Past results are not necessarily indicative of future results. The risk of loss in trading can be substantial, carefully consider the inherent risks of such an investment in light of your financial condition.
Please note that the executions and other statistics in this article are hypothetical, and do not reflect the impact, if any, of certain market factors such as liquidity and slippage.
You should read the Characteristics and Risks of Standardized Options.