Mean Reversion (trade against breakouts/breakdowns) vs. Trending Trading (trade with breakouts/breakdowns) strategies - when to apply which one?? Knowing this with certainty would be like having a printing press, and knowing this some of the time and knowing when you don't know/have an edge and thus not trading at those time would make one a great trader. CANSLIMers don't trade MR, most don't trade short and all most all sit out when they believe the market is not trending up. The robots try to blend the two (MR and trend trading). I trade with the robots and CANSLIM when its "on".
Holidays 2010 were good for CANSLIM/trend trading, and Paul's work shows MR worked better in holidays 2011. During Holidays 2011, most experienced CANSLIMers have been sitting in cash this holiday season (see M Scott, e.g.) - this is knowing when you don't know/have an edge. It is also helpful to support a decision to spend more time with the family/friends, but the holiday/seasonality is not driving the decision the market is, and if 2011 was like 2010 or perhaps trending up better, then many CANSLIMers would be glued to their monitors looking for set-ups and breakouts this holiday season.
I track volatility daily, and consistently at the end of the year (meaning about the last 2 weeks), volatility and volume both decrease. See the chart below. Consistently, each of the last 4 EOY holidays, IWM ATR/volatility has dropped into year end, as has volume (but, everyone knows that).
I would be cautious about assuming that MR strategies will work consistently on a profitable basis at the end of each year.
The chart of IWM looks very bullish to me b/c volatility has contracted significantly since the Aug-Oct 2011 breakdown, volatility contraction, and recent lower volume, but are the recent contractions in volatility and volume just seasonal? The chart below shows classic "coiling" in IWM or Darvis boxes with a 3 month Jul-Oct peak-trough of 30%, then contracting to 13% from early Oct into the end of Nov, then 6% from the beginning of Dec to mid-Dec, and finally 3 % in the last week or so. This is very "tight" price action and considered to be bullishly constructive.
We will find out next week, but it looks to me like we are nearing a breakout/breakdown from the "coiling" - the intermediate trend (marked by early Oct lows) appears to be up, so odds favor a breakout.
All my best for a happy and prosperous New Year to All!
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