Market Rebound Indicator

The Rebound indicator is a fully price-based daily indicator for capturing short-term rebound movements in equity markets. The Rebound indicator uses a proprietary contrarian model to identify high probability short-term trades.

Drawdown Context

Taking a Step Back

Every investor observed sudden corrections, independent of the general trend, from which the market recovers almost immediately. These sudden corrections provide good opportunities to positively leverage your portfolio to take advantage of the subsequent rebound. Alquant’s Rebound indicator is designed for this purpose. When a sudden oversold situation occurs, Alquant takes a step back from this narrowed observation and compares it to the medium-term market trend to assess whether this move reflects a real correction or a rebound opportunity.

Quantitative Analysis

Rebound Detection

The analysis process developed by Alquant proceeds according to the following logic. When the price of the underlying suffers a brutal drop while in the medium term the underlying shows a positive trend, a positive leverage opportunity is detected. We then estimate what leverage to apply to the portfolio. This will be proportional to the size of the drop. The deeper the drop, the bigger the rebound.

Practical Use

A Simple Output

The Rebound indicator should be used systematically and unfolds its full potential when used over the long term. To simplify its implementation and avoid unnecessary small rebalancings, the Rebound indicator has been designed to take only five values: 0%, 25%, 50%, 75% and 100%. A value above 0% means that the rebound indicator has identified an opportunity and recommends overweighting the exposure to the underlying; the higher the value, the higher the recommendation. On the other hand, if the rebound level is 0%, the exposure to the underlying should be neutral.

Indicator Low Rebound Indicator High Rebound
Indicator High Risk

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