Tight Consolidations After New Highs

The range over the last week has been extremely tight. On 7/20/16 SPY closed at a 50-day high. Every SPY close in the 5 days since 7/20 has been within the intraday range of that 7/20/16 bar. (And it wasn’t even that big of a range.) It is said that consolidations are often resolved in the direction of the trend. This guideline suggests that we’re more likely to see another leg up from here than a breakdown. The study below tests this concept.

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It certainly appears to confirm the old technical adage. Results favor the long side over the immediate 3-day period and they are even more impressive when looking out 8 to 10 days.

 

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An Extremely Quick Move From A 50-Day Low To A 50-Day High

Remarkable about Friday’s 50-day high close is that it came just 8 trading days after SPX closed at a 50-day low. That’s quite rare to see. The study below is from this weekend’s Quantifiable Edges Subscriber Letter. It looks at all the instances since 1950 of a move from a 50-day closing low to a 50-day closing high that have occurred within 2 weeks.

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There have only been 7 occurrences but the stats are overwhelmingly bullish over the next month. The profit maxes out on day 17 in the table above. To getting a better feel for the instances I have listed them all below along with 17-day stats.

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While 7 instances is a bit low, the results are unanimous and the stats above are incredibly lopsided. So it seems this study may be worth some consideration. The average run-up of the 7 instances is over 5x the size of the average drawdown, and every instance saw a run-up substantially larger than its drawdown. That’s impressive.

 

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Intraday Performance After A Massive Gap Down

As I write this in the middle of the night, the S&P 500 futures are down between 4% – 5%. A 4% gap down for the SPY is very rare. Below is a list of all other times it has happened since its inception in 1993.

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It does not appear as though panic selling at the open would be wise. There seems to be a strong upside edge for this one day. Of course the sample size is low and anything could happen in such a highly charged environment.  But this study certainly suggests an upside edge should a 4% gap down actually materialize.

 

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5-Day Declines That Remain Above 20-day lows

(Note – the table below was corrected from an earlier post.)

Wednesday marked the 5th day in a row that SPX closed lower. The study below was noted yesterday afternoon by the Quantifinder. It examines 5 lower closes above the 200ma and also above a 20-day low. All results are updated.

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Based on the stats table there appears to be a bullish inclination, especially over the first 2-3 days. I have actually seen a large number of studies the last couple of days suggesting a bounce is likely. To this point those studies have not mattered. At some point they will, but the market environment appears a bit more dangerous than usual. Still, from what I am seeing, there certainly appears to be a strong chance at a bounce in the coming days.

 
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Sharp Drops From Intermediate-Term Highs – A Short Term Bullish Setup

Thursday and Friday saw relatively large selloffs in SPX. After closing at a 50-day high on Wednesday it closed at a 10-day low on Friday. This triggered an interesting study from the Quantifinder that looked at relatively sharp selloffs that made at least 8-day lows. I have updated that study below.

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The stats all suggest an upside edge over the next 1-5 days. Traders may want to keep this in mind when setting their trading bias this week.

 

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A Long Term Look At Memorial Week Seasonality

The week of Memorial Day has shown some interesting seasonal tendencies over the years. And for a long time it exhibited consistent bullishness. But it has faltered greatly the last several years. The chart below examines SPX performance from the Friday before Memorial Day to the Friday after it.

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There was no substantial edge apparent throughout the 70s, but starting in 1983 through 2009 there was a bullish tendency. The last 6 years this week has mostly struggled. So I am not sure Memorial week will provide any substantial edge, but I thought the history was interesting.

 

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When SPX Closes Down Slightly & Remains Strongly Overbought

The move higher earlier this week pushed many oscillators strongly overbought short-term. With such a small SPX decline on Thursday, it is still very overbought as measured by the 2-day RSI. The 2-day RSI is a very sensitive indicator so it would take a very small decline from a very overbought position in order for it to remain above 90 on a down day. This is what happened on Thursday.

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The stats here are all appealing over the 1-2 day period. Winning %, win/loss ratio, and profit factor all strongly favor the bulls. When an overbought market has pulled back as little as it did Thursday, it may not want to pullback at all, and has often continued higher over the next 1 to 2 days.

 

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How Monday’s Consolidation Favors The Bulls

Monday marked the 6th day in a row that SPX reversed direction on a closing basis. Friday’s bounce off a 20-day low on Thursday did not get any follow through. But bulls should not be too discouraged by this. The study below is from the Quantifinder. It considers similar situations in the past.

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The stats certainly appear bullish and the edge seems to occur both right off the bat and after a couple of weeks. Traders may want to keep this in mind over the next few days.

 

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Why May’s Strong Start May Reverse

Yesterday I showed the strong seasonal tendency of the SPX on the 1st trading day of May. Today is a look at what has happened after a positive start to May…

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Of the 19 instances that rose on the first day in May since 1987, 15 of them closed lower 4 days later. The market got a little bit of a head start downward this morning. I’ll also note I am seeing mixed indications, with some bullish evidence as well. So it will be interesting to see how things play out over the next few days. But seasonality is certainly pointing lower.

 

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Why Today “May” See Gains

The 1st trading day of the month is often a bullish day for the market. In the past I have broken down the tendency by month. And since 1987 May has produced the most profits. Below are results for May dating back to 1987. (Note performance is measured on a close to close basis.)

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Stats here are strongly lopsided in favor of the bulls. Winning %, win:loss ratio, profit factor, and average trade are all outstanding. So if seasonality plays out, we May see some gains today.

 

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A Long-Term View of Fed Days

Wednesday is a Fed Day, which is defined as a day that a scheduled Fed meeting concludes and policy statements are released. Fed Days occur 8 times per year. Since 1982 they have shown a strong bullish propensity. The chart below is one I showed many years ago, but had not updated in a while. I decided to do so today.

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For some comparison, the average Fed Day has gained over 9x the amount of the average non-Fed Day.

If you would like to learn more about Fed Days, numerous studies may be found on the blog, or you can check out the Quantifiable Edges Guide to Fed Days for download or in paperback.

 

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Happy Tax Day?

Today is the day taxes are due in the U.S. The reason tax day may be important is that it is the last day that people can make IRA contributions to count for the previous tax year. This can create a last-minute rush and you will often have an inflow of funds heading into the market right around and on April 15th. Fund managers will often put this money to work immediately and it creates a positive bias for the market. Tax Day itself seems to have benefited over the years. I showed this on the blog last year. Below I have updated the statistics.

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The numbers are certainly impressive. It looks like the market is going to open with a gap lower this morning so it will be interesting to see if the positive Tax Day seasonality can kick in and overcome today’s weak start.

 

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April Opex Week Historically Bullish

April expirations week has historically been very bullish. This can be seen in the study below, which looks back to 1984 when S&P options first began trading.

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The consistency has been very impressive. It suggests an upside edge the first few days of this week.

 

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Opex Week By Month & How March Stands Out

There is a seasonal influence that could have a bullish impact on the market this week. Op-ex week in general is pretty bullish. March, April, October, and December it has been especially so. S&P 500 options began trading in mid-1983. The table below is one I have showed on the blog in years past. It goes back to 1984 and shows op-ex week performance broken down by month. All statistics are updated.

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While December has been more reliable, March op-ex week has seen the most in total gains. Seasonality could provide a bit of a wind at traders’ backs this week.

 

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