The following is an interesting analysis of downturns in one of the most popular relative strength screens on the MI board, the RS Overlap. (MI post#66149)http://boards.fool.com/Message.asp?id=1030013011898000&sort=idGiven the recent volitlity in the market, I wanted tosee how one of my favorite screens has fared in timespast, so I exported the data for RS-O 13/26 1-25:3 to Exceland starting looking at the drawdowns and recoveryperiods for this screen. What I found was that thiscurrent volatility is nothing new. The questions I wanted to answer were: 1. How frequent does a downturn of more than 20% occur?2. How long does it last?3. How long does it take to recover?I choose periods of 3 or 4 negative months in a row,or a 2 month drop greater than 20%. This is a hand analysis of one screen, that I did to get a feel for how it behaves.Here is the data:Dates _______________ Drawdown_______Months torecoverJun-Sep 86______________-35.7%__________7Oct-Nov 87______________-46.4%__________10 Oct 88-Jan 89___________-13.4%__________3Jun-Aug 90______________-17.9%__________4Mar-Jun 92______________-17.0%__________3Oct 93-Jun 94___________-32.6%__________6Jun-Jul 96______________-20.3%__________4Oct-Dec 97______________-28.7%__________4Aug-Sep 98______________-23.3%__________2Conclusions:1. Significant drawdowns (greater than 15%)on the RS-O screen appear to be typical and periodic.2. There have been 9 drawdowns greater than 15% going back to 1986.3. The average drawdown was around -26%.4. The average recovery period was 4-5 months. That is the number of months to get back to where you started before the drop.5. Most of the downturns only lasted 3 or 4 months.I find it most interesting that the typical downturnlasted around 3 months, which is equal to the RS-13component. I wonder if this is the time it takes forthe screen to "react" to the changing market and pickup new leaders.One final number, it has been 17 months since our lastdownturn where we had two negative months combined for-23.3%, so maybe we are due.Based on the first Friday pick, our first negativeperiod for RS-O was March at -13.5%. If historyrepeats itself, we could expect 1 or 2 more negativemonths, followed by a 3-4 month recovery back to thepre-drop levels.Oh yeah, despite all of these downturns, if you hadinvested $10K in Jan-86, you would have over $18M now.
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