ISM Indicator As a Strategy

3 Des 2015

Here's a very easy code, plotting the ISM against the SPX. In this exercise, i wanted to see if one could use the ISM indicator only to generate buy/sell signal, and what would be the performance.

What is the ISM

The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries.By monitoring the ISM Manufacturing Index, investors are able to better understand national economic conditions. When this index is increasing, investors can assume that the stock markets should increase because of higher corporate profits. The opposite can be thought of the bond markets, which may decrease as the ISM Manufacturing Index increases because of sensitivity to potential inflation.

Buy/Sell Signal

ISM above 50 usually good economic condition and vice versa when below 50 . For this code I used 48.50 as my buy/sell signal line.

Results

To test this on a longer time period, I use the SPX index instead of SPY. The results are surprisingly good. 76.92% profitability with 3.03 profit factor.

Conclusion

Investors could use the ISM with other indicators to determine better entry and exit point. I will see if combining the ISM with other custom indicators , could generate better result. Feel free to share your results here.

Cheers

Algo.