Shortly after Brexit, I was approached by a major financial publisher in London who asked me if TradeStops could have helped British investors navigate the Brexit crisis.
“Send me some stocks to review and I’ll get back to you within a couple of weeks,” I replied.
I think that you’ll be interested in what I found.
The publisher sent me the list of the 30 most actively traded “deals” on the London Stock Exchange for the week prior to Brexit. (BTW, I still haven’t found a good explanation of why or when a stock is referred to as a “deal” in the UK. If there are any financial Brits out there who can enlighten me on this point, I’m curious.)
Of these 30 actively traded “deals”, 28 of them had at least two years of historical data, which is our minimum requirement for running our Stock State Indicator (SSI) system. So we ran our indicators against these 28 stocks to see how the TradeStops SSI would have performed.
The Brexit vote occurred on June 23, 2016. The first day of post-Brexit market activity was June 24th. So we took the closing prices as of June 23rd as the pre-Brexit cutoff date.
The first striking result that we found was that fully 19 of these 28 stocks, over two-thirds of them, were stopped out by the TradeStops SSI system before Brexit ever even happened.
A great example of one of the stocks that was stopped out prior to Brexit is British Telecom. BT enjoyed a nearly 7 year run of solid and steady gains prior to being stopped out by our SSI system just 10 days prior to Brexit.
From the time it triggered an SSI entry signal in late 2009 to the time it finally stopped out on June 13, 2016, it enjoyed a gain of 270%. Since stopping out, the stock is down about 2%.
Many of these 19 stocks that stopped out prior to Brexit are down a lot more than that. In fact, the average decline of these 19 stocks during the first week of post-Brexit market action was a shocking 17%.
Think about that for a minute. For 19 of the 28 stocks we reviewed (again, that’s over two-thirds of the stocks we analyzed) TradeStops was already on the sidelines … and the average decline of those 19 stocks during Brexit week 1 was 17%. That’s a whole lot of stomach churning losses that TradeStops would have completely avoided.
What about the remaining 9 stocks that weren’t stopped out prior to Brexit?
Four of them were already in the SSI yellow zone (aka the Low Risk Zone). All 4 of these stocks were stopped out on the first day of post-Brexit market action. The average gain on these 4 stocks from SSI entry to their Brexit exit was 193% and the average holding period was about 5 years.
One of the four stocks that were stopped out during Brexit week was Barratt Developments. The chart below shows how the TradeStops SSI system performed on this stock and how it was stopped out on June 24, 2016 – the first day of post-Brexit trading.
The average loss over the first week of Brexit for these 4 stocks was 11%.
That leaves us with 5 stocks remaining of the original 28 stocks we analyzed. These 5 stocks were all solidly in the SSI green zone at the time of the Brexit vote. How did these 5 stocks perform post-Brexit?
One such stock was Royal Dutch Shell. You can see in the chart below how the TradeStops SSI system went long RDSB in mid-2009, stopped out in late 2014 for a gain of about 125%, got long again in early 2016 (at a lower price) and stayed long through Brexit and on to new highs.
In fact, these 5 stocks that were in the SSI green zone at the time of Brexit weren’t even down during Brexit week 1. On average they were actually up 3.5% during the first week of Brexit … and are all solidly up even more since then.
Needless to say, my publishing colleagues in the UK were impressed with these results … and their readers will very soon be hearing a lot more about how TradeStops can help them to be more successful investors.
I hope that these results are inspiring to you too,
Richard M. Smith, PhD
CEO & Founder, TradeStops