A Simple Measure of Overbought in NASDAQ is Suggesting a Pullback

Friday was the 4th day in a row that the NASDAQ closed higher. While this may not seem to be a big deal, it does not happen very often when the NASDAQ is trading below its 200-day moving average. The table below shows results following all times this has occurred since 2002.

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Results here appears to be strongly bearish. And the edge persists for up to 2 weeks.  The note at the bottom is worth considering, in that all 21 instances saw some kind of pullback in the next week.  Traders may want to keep this in mind over the next few days.
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A Follow Through Day & A 20-day High

Tuesday posted the 1st IBD Follow Through Day (FTD) since the rally began. Unusual about this FTD is that it occurred in conjunction with SPX making a new 20-day high. The study below examines other times a 20-day high was accompanied by a FTD.

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Results here are impressive over both the short and intermediate-term. To get a better feel for the short-term returns I have listed the instances below.

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The run-up to drawdown ratio here is quite impressive. I’ll also note that 9 of the 12 instances went on to have “successful” rallies. (“Success” means it either hit a new 200-day high or at least rose 2x as much as it had already risen off the bottom.) The 3 instances whose rallies did not succeed (circled in red) all saw run-ups of at least 2% before they eventually rolled over and made new lows.

 

A summary of some of my past FTD posts can be found here.  Or for the complete list of past FTD studies click here.

 

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Long-Term Implications of Last Week’s Breadth Thrust

Friday’s rally generated the 2nd 90% Up Volume day within 5 days. In other words, on the NYSE 90% of the reported volume went into securities that closed higher. Last Tuesday we also saw this happen. In the past 2 such days in close proximity has been a positive sign for the intermediate-term. It is something I shared in the subscriber letter over the weekend, and wanted to post to the blog – but did not get a chance until now. With nearly 9 months left in the study and hardly any move on Monday, I thought it was still plenty fresh enough to share. So below is a list of the 9 (non-overlapping) instances and their 9-month performance.

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The 2007 instance did not pan out, but every other instance was followed by a powerful 9-month rally. The “smallest” rally over the next 9 months was the 13.3% gain in ’84-’85. Those are some very strong moves. Instances are low, but the breadth thrust certainly seems to favor the bulls.

 

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Repeated Hard Selling At Intermediate-Term Lows

Friday marked the 3rd day in a row of hard selling at intermediate-term lows.  The study below shows that such hard selling is rare, and has often been met with a  strong upside reversal.

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While instances are low, the stats so far appear impressive.  I will also note that 7 of the 10 instances saw SPX close Day 2 over 2.50% above it’s entry price.  Traders may want to keep this study in mind when setting their trading bias.

 

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Why The Low CBI Is A Concern With The Market Selling Off

I am seeing a number of studies that are suggesting the market is oversold and primed for a bounce. But there is one thing that concerns me about this selloff. That is the fact that the Quantifiable Edges Capitualtive Breadth Index (CBI) was still stuck at zero as of Wednesday’s close. Historically, the higher the CBI the better the chance of both a short and intermediate-term bounce when the market is making new lows. The studies below are from yesterday’s Subscriber Letter and they exemplify this.

The first one looks at performance following 50-day low closes when the CBI is 0.

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Other than perhaps a very quick bounce this has not been a favorable setup for the bulls. From 1-4 weeks out the results have all been net negative.

Now let’s look at instances where the 50-day was accompanied by a CBI of between 1-5.

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Still nothing I would want to place a strong wager on, but the results table has turned from mostly red to mostly green. So some improvement is certainly seen. Now let’s look at CBI readings between 6-9.

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These are some solid bullish numbers. And the edge seems to persist from Day 1 and throughout the next 4 weeks. Lastly, let’s look at high CBI readings of 10 or above.

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These are by far the most appealing results, from Day 1 right through day 20. And 20 days out there was just one loser and it only lost 0.2%. Of course we are not near this right now. We are in the first situation with a CBI of 0. The market is still capable of a rally. The probability is just not nearly as high. And that has me a little concerned.

 

Look for more on the CBI in the coming weeks!

 

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The Bullish News About The End-Of-Quarter Selloff

Wednesday and Thursday were a tough way for the indices to finish the year. In the study below I show other times where the SPX closed down on the last two days of a quarter. I found that when the last two days were down, but the quarter was still positive, there appeared to be a strong upside tendency over the next few weeks.

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The consistency and the strength of the edge is impressive. While the market is off to a tough start this morning, history says that is unlikely to persist in the coming days & weeks.  While there is more than just this that will impact market movement going forward, it may be worth considering this study when establishing your trading bias.

 

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Last Day of 2015 – Should You Sell A Little Early?

In the subscriber letter last night (and last year), I showed some studies that examined SPY performance in the last 15 minutes of trading for the year.  The table below is from those studies.  It shows all “last 15 minutes” from 1998 – 2014.

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Seventeen declines and only three gains.  And the average 15-minute period saw SPY close down nearly 0.25%.  That is a sizable amount for just 15 minutes.  Traders may want to keep this in mind as we approach the close.

 

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Strong Rally Days Between Christmas & New Year’s

The week between Christmas and New Year’s is often a quiet one that is not prone to large-move days. So strong rallies like we saw on Tuesday are a bit unusual this time of year. I looked back to 1970 to see what has followed other times when SPX rose over 1% on a day between Christmas and New Year’s. Results are below.

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The stats here all point to a bullish edge. Most of the gains were realized in the first 2 days, but the edge does appear to persist through day 5.

 

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‘Twas 3 Nights Before Christmas – NASDAQ Version Updated

I’ve been posting and updating the “Twas 3 Nights Before Christmas” study on the blog here since 2008. The study kicked in at the close yesterday close. This year I will again show the Nasdaq version of the study. While all the major indices have performed well during this period, the Nasdaq Composite has some of the best stats.

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The stats in this table are strong across the board.  An average year posted a gain of nearly 3% over the next 8 days.   The stats do not look as strong as last year though, because 2014 was the worst year so far when looking out 8 days.  The note at the bottom shows reliability of some kind of bounce has been nothing short of incredible. Traders may want to keep this one in mind over the next couple of weeks.

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Historical SPX Performance When Rates Start To Rise

Fed announcing Wednesday that they will begin raising rates for the 1st time in 11 years. Since 1990 there have only been 4 other cycles of rate hikes. I decided to measure SPX performance from the start of those cycles. I found that one month later the stock market was trading lower every time. But one year later it was higher every time. Individual returns (based on $100k/trade) can be found in the table below.

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Of course it is dangerous to draw conclusions from just 4 instances, but I thought it was interesting and somewhat noteworthy nonetheless.

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Another Look At Thanksgiving Week

Historically Thanksgiving week has shown some very strong tendencies. The table below is one I have shown a few times over the years. I decided to update it again this year.

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Monday and Tuesday don’t show anything suggesting an edge. Monday’s total return was actually negative until 2008 when it posted a gain of over 6%. Wednesday and Friday, on the other hand, appear to be strongly bullish. And the Monday after Thanksgiving appears to exhibit a bearish edge.

 

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Over 90% Of The Time Reversals Like Monday Have Done *This* The Next Day

Last night I examined the current SPY pattern. I took into account Friday’s short-term closing low and Monday’s outside day and strong close. The study I concocted only triggered 11 previous times. But 10 of them saw lower closes the next day and the Average instance had a 1-day loss of over 0.9%. Below is the list of individual instances.

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Not only have 10 of 11 closed lower but the average drawdown has been nearly 3x the size of the average run-up. This suggests a bearish edge for Tuesday.

I should note that I have seen other evidence over the last few days suggesting the bounce should have further to go. So although the study above is interesting and provides me a warning for Tuesday, I personally do not view it as reason enough to short the market.

 

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Two Unfilled Down Gaps For SPY — Good News?

Both Thursday and Friday saw SPY leave an unfilled gap down. That is fairly unusual. In the study below I examined other times it has occurred since 2002 while SPY was below the 200-day moving average.

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Every instance except one was higher five days later. While instances are a little low, the numbers are compelling and suggest an upside edge over the next week.

 

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How Monday’s Strong Drop May Be Setting SPX Up For A Bounce

When a market has already sold off for multiple days and the selling accelerates that can often mark a point where a bounce becomes likely. Monday’s selling triggered the Quantifinder study below. All stats are updated.

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These results appear extremely compelling. The consistency is very strong. Of course the market is always capable of doing things it hasn’t before. We’ve seen plenty evidence of that since Quantifiable Edges started. So although this condition has led to a bounce in every instance evaluated over the test period, it’s no sure thing. In fact just before the period shown there were 2 trades that were losers. Still, the evidence appears strong enough to suggest a bullish inclination.

 

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Happy Columbus Day…Again?

While the stock market is open on Monday, banks, schools, government offices, and the bond market are closed. In past years with the bond market closed, the stock market has done quite well on Columbus Day. Of course the most famous Columbus Day rally was in 2008 when the market gained over 11% after having crashed the week before. A few times here on the blog (most recently 10/13/13) I showed that positive momentum leading up to Columbus Day has generally led to a positive Columbus Day. Columbus Day has been celebrated on the 2nd Monday of October since 1971. Below is an updated version of that study.

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I’ve circled some of the more impressive stats here. With 75% of trades profitable and winners twice the size of losers risk/reward has been very favorable. The note at the bottom of the stats table is also interesting. Anytime the market did NOT do the expected, it went hard the other way.

 

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