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One particularly notable indicator change that occurred at the close on Friday is that out NASDAQ/SPX Relative Leadership indicator flipped so that it is now showing the SPX as leading and the NASDAQ as lagging. This can be seen in the chart below.
Whenever the solid (green/red) line is above the blue dashed line that means the NASDAQ is leading. When it drops below (and turns red as it is about to do), that means the NASDAQ is lagging the SPX. The market has performed substantially better over the years when the NASDAQ has been leading. You can see in the chart above that the NASDAQ has been the leader for most of 2023. SPX was the leader for most of 2022 as the market struggled overall.
I wrote about this indicator on the blog way back in 2009 . I also discussed it in an article for ProActive Advisor magazine last year . Most significantly, it is one of the indicators included in the Quantifiable Edges Market Timing Course . In the course I show how it can be combined with some other indicators to create some simple but compelling market models.
This could be a brief headfake like we saw in April. But it is certainly notable that NASDAQ is no longer the stronger of the two indices. And that is generally an unfavorable condition for as long as it persists.
You may find more information on the Quantifiable Edges Market Timing Course here .
Quantifiable Edges Market Timing Course was originally released in 2014. Since then, the Combination Models presented have all soundly outperformed the S&P 500 (as shown in the table below).
Quantifiable Edges just released its 2nd edition of the course, with updated stats for the 4 original indicators and 3 original combo models. But we are also expanding the course to include a new Fed Liquidity indicator and new combination models to incorporate this new, powerful indicator.
The table below shows performance of the 3 original combination models since the release of the Quantifiable Edges Market Timing Course over 9 years ago.
All 3 models have achieved higher returns with less drawdown and reduced market exposure in live action over the last 9+ years!
Combination #2 is the most active and aggressive version. It has been in the market about 79% of the time since it was 1st published. Over that time, there have only been 48 trades (about 5 per year), and it generated a compound annual return that outpaced the S&P 500 by 5.55% per year! Below is a profit curve of the model vs the S&P 500.
The chart was created using RealTest software, and RealTest users can easily reproduce it with the add-on code.
Now with the updated and expanded 2nd edition of the course, Quantifiable Edges introduces its Fed Liquidity indicator. The indicator is grounded in Fed-based work that Quantifiable Edges has produced since 2012. And as you’ll see in the analysis, the Fed Liquidity indicator would have acted as a better predictor of SPX movement over the last 20+ years than any of our original 4 indicators.
We then share some ideas and sample models showing how incorporating the Fed Liquidity indicator along with the original models would have produced even more impressive results than the original Combo Models.
Also covered in the course are ideas for execution, potential improvement on the models, and how they could be incorporated into someone’s portfolio.
The indicators and models are all fully open.
Excel, Tradestation, and Ninja-Trader code is available for free for the original 4 indicators.
RealTest and Amibroker code is available as an add-on.
And for the next few days, you can get it for less than the price of the original Market Timing Course!
Additionally the original course is still available for students to view and refer to so that they can easily see what was taught 9 years ago, and how it has held up over time!
More good news:
The course is priced at a very-low $125, but for the 1st few days only, it will be available for just $90! RealTest and Amibroker code will be 25% off! The course (without the premium code) is available free for anyone with an annual subscription signing up for an annual subscription , the offer just got sweeter. If you purchased the original Market Timing Course, then you can get another $40 off the 2nd edition by using the coupon code “Repeat”. Anyone can build a nice-looking backtest. Live performance is what matters. The Quantifiable Edges Market Timing Course has delivered since it was released in 2014. So take advantage of this offer, and gain a quantifiable edge over most investors! (Or sign up for an annual Gold or annual Silver subscription and get the 2nd edition of the Market Timing Course for free!)
Click here to purchase!
This week is options expiration week. And we have known for a long time that opex is often a bullish week for the market. Interestingly, that seasonal tendency has not seemed to hold true since the COVID crash in 2020. Below is a look at performance of all opex weeks since 1984.
There has been a clear shift in the curve over the last few years. The top of this curve came in January of 2020. February of 2020 saw a decline of 1.25%, and then March had the worst opex week ever, with a 14.6% drop. But unlike other periods, opex week has never recovered its bullish tendency. The chart below looks at performance since April of 2020. I started the chart at that point simply to see how it has done since the market bottomed in 2020. So this does NOT include the worst week of March 2020.
There has been a little bit of a bump up over the last few instances, but the stats and curve still look pretty awful. I am not yet convinced that downside tendency of the last few years is a new seasonal trend. But I certainly see enough evidence here that I am no longer looking at opex weeks and automatically thinking they are bullish.
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I have seen some chat about the Russell “Death Cross” that occurred on Friday and the potential bearish implications for the market. A “Death Cross” is a catchy (though not terribly accurate) term for when the 50-day moving average of a security cross below its 200-day moving average. It is sometimes promoted as a warning of a potential bear market. Of course all bear markets will see this happen at some point, because a bear market is an extended decline. But the real question when considering the implications of the Death Cross are whether it serves any value in predicting a more substantial decline. A few years ago I did an examination of past Russell Death Crosses, and what they meant for the S&P 500. I have updated that study from the 11/14/18 blog below.
Both of my data sources show Russell data back to late 1987. And since I need 200 days to calculate a 200-day moving average, the earliest the study could look back to was 1988.
Here is the list of all Russell Death Crosses and how the SPX performed from the time of the initial cross until the Russell Death Cross was no longer in effect (meaning the 50-day moving average closed back above the 200-day moving average).
Twenty-one winners. Only four losers. So 84% of the “predictions” were wrong. The biggest winner of the group came in 2020. The most recent instance, from last year, saw a substantial loss. Here is a look at the summary stats and a profit curve for this setup.
I am having a hard time seeing the Russell 2000 Death Cross as a bearish indication. You would have a much easier time convincing me this is a bullish indication for the intermediate-term. (I don’t really view it as bullish though. Drawdowns were generally sizable, even for a good portion of the “winners”.)
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Last week I did a presentation on VIX-based Trading Edges to Ali Pashaei’s group of traders. Ali has been kind enough to post a recording of the presentation and discussion to his website in an area that is free for the public. A link is below:
VIX-based Trading Edges by Rob Hanna of Quantifiable Edges (optionsinpractice.com)
You may recall Ali from an interview I did with him about a year ago . He runs the Options In Practice website. That interview can still be found here , and contains lots of interesting ideas. So if you have some time later today or this weekend, check out my presentation to Ali’s group from last week. And if you missed it a while back, watch or listen to my old interview of Ali as well!
