SPX Performance After 2-Days Bounces From Lows Similar To Thurs-Fri

Friday was the 2nd day in a row that SPY put in an unfilled gap up (though Thursday ended with very small gains.) And while the move up on Friday was strong, it still was not strong enough to erase all of Wednesday’s losses. Wednesday was a big down day that left SPX at an intermediate-term low. The Quantifinder showed a study that examined other instances where SPX rebounded 2 days off a 20-day but failed to fully recover the losses of the previous day. I updated that study in this weekend’s Subscriber Letter and have included the stats table below.

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Instances are a bit low here, but the stats are quite compelling. I suggests a short-term bullish edge.

 

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I’ll Be Appearing on the TimingResearch Weekly Webshow Monday

I am excited to once again be able join host, friend, and fellow analyst Dave Landry (along with other guests) for TimingResearch’s weekly show on Monday.  Information about the show, along with links to sign up are below.  All shows are recorded, so if the time is not convenient for you, just register and you’ll receive the recording.

Click here to learn more and sign up!

Date and Time:
- Monday, July 6, 2015
- 1PM ET (10AM PT)

Guests:
- Rob Hanna of QuantifiableEdges.com
- Ken W. Chow of PacificTradingAcademy.com
- Doc Severson of TradingConceptsInc.com

Guest Host:
- Dave Landry of DaveLandry.com

Click here to learn more and sign up!

1st of Month by Month (Updated)

A few times over the years I have shared this study.  It breaks down the bullish “1st trading day of the month” tendency by month.  I thought it would be interesting to take another look at it today.  Below is an updated version of the study orginally shown here on July 1, 2009.

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July has continued to be the most reliable month in term of closing positive, but when looking at the size of the average gain, it comes in 3rd.  You also note that August remains the worst on both counts (though it is now net positive, whereas in 2009 it was net negative).

 

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How The Russell 2000 has Dominated the S&P 500 in Late June

Yesterday I published a study that showed the week after June opex has exhibited weakness in recent years. An astute newsletter subscriber suggested to me that this could be partially due to Russell rebalancing, which always happens at the end of June. His comments led me to wonder how the Russell 2000 might have performed versus the SPX during late June. The table below shows how the Russell 2000 has done versus the SPX from the close the Tuesday after June Opex (which would be today’s close) until the close on the last trading day of June.

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For the last 14 years the Russell 2000 has outperformed the SPX during this late June period. The average outperformance was 1.52%. This would seem worth keeping in mind over the next week.

 

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This Week In June

The week after June opex is one that has struggled quite a bit in recent times. This can be seen in the table below, which shows full-week performance dating back to 1999 when the bearish inclination seemed to kick in.

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As you can see, it has been quite a streak of bearishness. Thirteen out of sixteen years have closed down. So it would seem we may be entering a weak seasonal period.

But the edge hasn’t existed for that long. In fact, if you look back further, you’ll find periods where this week appeared to show a bullish tendency. For instance, between 1979-1989 it closed up every year. So it will be interesting to see if the current bearish tendency continues to play out in the coming years.

 

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Friday’s Unfilled Gap Down Completed This Short-Term Bearish Setup

Interesting about the action on Friday was that SPY posted an unfilled gap down, and this occurred immediately following an unfilled gap up the day before.  The study below was appeared in  the Quantifinder.  It examines 2-day moves like SPY has just encountered.

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Based on the numbers there appeared to be a moderate downside edge over the next couple of days. While I don’t always show it in the blog, I do always examine the profit curves of these studies, and I do always post the curves in the Subscriber Letter. With the stats borderling, I decided to include in the blog today as well. Below is the 2-day curve.

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While the steepness has lessened some in recent times, there still appears to be a bearish suggestion. To me this study seems worth some consideration.

 

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How SPX Has Moved After Similar Drops & Consolidations

After the big down day last Tuesday the market has not done a lot. In fact, it has closed within the true range of that 1 bar every day for the last week. The bears failed to follow through on that selloff, but the bulls have not managed to move the SPX back out of the range either. This triggered the study below from the Quantifinder.

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Over the last 26 ½ years or so the SPX has burst higher out of this “failed selloff” and consolidation on a consistent basis. But the implications are only bullish for a few short days. After that there does not appear to be a decided edge for either the bulls or the bears.

 

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SPX After Quick Drops From 50-day Highs

The study below is one I have shown here on the blog for a long time. It looks at relatively sharp selloffs from intermediate-term highs. It shows that there has been a strong tendency for situations like the current one to bounce. Results are updated.

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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 the next few days.

 

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Andrew Swanscott Interviewed me at Better System Trader (and Quantocracy readers liked it!)

Need something to listen to on your Memorial Day weekend car trip?  Can’t bear to be without the markets for 3 days?  Check Andrew Swanscott’s interview with me at his great new site, Better System Trader.  It was published just a few days ago and joins a growing list of excellent podcasts that Andrew has done.

 

I was also honored to see the interview was voted one of the top Quantocracy links this week by Quantocracy readers.

http://quantocracy.com/new-feature-at-quantocracy-voting/

 

Of course if you follow @BetterSystemTrader, or @Quantocracy, or @AbnormalReturns you are probably already aware of the interview.  If not, you may want to follow them.

 

Enjoy the long weekend!

 

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Why Friday’s Quiet OpEx Could Mean Trouble This Week

Despite the options expiration, SPY volume came in at the lowest level of the week. When combined with the fact that the VIX also closed at a recent low it brought about a bearish study from the Quantifinder. Results below are all updated.

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The low VIX typically suggests complacency. It also frequently occurs when the market is at a short-term high level as it is now. The low SPY volume may also suggest complacency. SPY volume tends to spike during times of fear and to be low when traders are more comfortable. This is partially due to SPY often acting as a hedge security. Traders are less inclined to hedge when they are comfortable with market conditions. In any case, while the instances are a little low, the results are suggestive of a downside edge for about a week.

 

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What Friday’s Big VXO Drop Could Mean For Monday

The VIX, which is a measure of options pricing and is often referred to as a “fear index” saw a 15% drop on Friday. Meanwhile, the VXO, which is the old measure of the VIX, declined nearly 22%. Such big declines often suggest short-term over-optimism on the part of traders and are followed by a dip the next day. This can be seen in the study below.

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Numbers here suggest a downside edge. Traders may want to keep this in mind today.

 

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Employment Day Action

One factor that will likely have a substantial impact on market movement on Friday is the reaction to the Employment Report. Employment days have done fairly well over the last few years but most of the gains are thanks to the overnight session. This can be seen in the 2 profit curves below.

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As you can see, the overnight has generated more than 9x the profits of the day. Day profits have been less reliable and more volatile. With the report just released it appears the typical gap higher is going to occur. Unfortunately, what happens between the open and the close is a lot more random.

 

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When May Starts With A Rise

May has seen a rise on the 1st trading day of the month a high percentage of the time. But that start of May strength has not typically seen follow-through in the next few days. This can be seen in the results table below.

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Of the 18 instances that rose on the first day in May since 1987, 14 of them closed lower 4 days later. Traders may want to keep this in mind this week.

 

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When SOX Falls As NDX Has A Strong Day

One interesting aspect of Friday’s action was the discrepancy between the NDX and the SOX. While the NDX rose 1.3%, the SOX declined 1.7% – which is very unusual action. Below is an updated study that looks at times the NDX rose by a least 1% while the SOX declined.

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Six days later 76% of the instances were losers and the average occurrence was nearly a 3% loss. That seems to be a fairly substantial edge, and may be worth giving some considerations to. I should note that the majority of the studies I am looking at currently are leaning bullish. But if short-term bears want something to grasp onto, this may help with their case.

 

 

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