1 year SPX Correlation Pullback

High Probability Trading with the Delphian Studies

 A pullback is a small to moderate drop in a stock price from recent peaks that occurs during an uptrend.    Delphian finds stocks in pullbacks that have met our aggressive pullback target (State 2, Target 3) and have a high correlation to the S&P 500 over a one year period.  Backtesting revealed this signal occurs near the end of the pullback and to expect the stock to resume the trend higher soon after.


Trade Theory:

Most often when a stock transitions from State 1 to State 2, the stock is in a temporary pullback. Once the State Modeling State 2, target 3 has been hit, the stock has hit Delphian’s most aggressive target price for the pullback.  The target 3 price is a strong support area and bullish stocks will usually have a reversal at that support level and continue its original trend higher.  Using a secondary confirmation can assist in solidifying a potential price support and the continuation of an uptrend. Correlation with the S&P 500 offers trend analysis that suggests when the S&P 500 is on an uptrend, stocks highly correlated with the index should continue an uptrend as well.  The combination of these two signals presents a potential near-term bottom with a typically rapid reversal.


The 1 Year Correlation to SPX Pullback uses the following signals:

  • Correlation greater than or equal to 85% to the SPX over 1 year (252 trading days) 
  • State Modeling™ set for State 2, target 3 met today


Charts depicting confirmation of a pullback:

FDX State Modeling – State 2, Target 3 hit on 2/8/2018

1yr sm


FDX and SPX are 96% correlated for 252 trading days on 2/8/2018

1yr corr


FDX chart after the bullish signal on 2/8/2018

1yr result


Trade results after buy signal:

Long stock with 5% profit and 10% stop loss

Entry 02/08/2018, 5.41% profit achieved on 02/23/2018 (In trade 11 trading days)

Long call with 25% profit and 100% stop loss

Entry 02/08/2018, 27.88% profit achieved on 02/23/2018 (In trade 11 trading days)

For additional option strategy results, please register on the right side of the page.


Explanation of the signals:

1.  State Modeling™ is a proprietary signal from Delphian Trading. Stocks are in a State numbered from 1 to 8 at any given time and only in one state at a time.  States 1, 3, 5 and 7 are bullish and States 2, 4, 6 and 8 are bearish.  State 1 is extremely bullish while State 8 is extremely bearish.  This signal allows users to find symbols based on their current state, current state profit and loss targets and whether or not their current targets or stops losses have been met.

2.  Correlation is measured from -1 to 1, with -1 being inversely correlated and 1 being perfectly correlated. Inversely correlated symbols move in the opposite direction of each other and correlated symbols move in the same direction. Therefore, if a symbol is highly correlated to the S&P 500 and the S&P 500 is moving higher than the correlated symbol should move higher as well.  S&P 500, SPX, 1-year correlation is a measure to determine how correlated symbols are to the S&P 500 over a one year period.

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