2 Unfilled Up Gaps And A 50-Day High

Monday not only saw SPY make a 50-day high, but it was also the 2nd day in a row with an unfilled gap up. The study below is from last night’s letter and was previously discussed several other times in the subscriber letter (click here for free trial). It examined other times SPY left at least 2 unfilled up gaps and closed at a 50-day high.

2019-11-05-1

The size of the follow-through isn’t terribly large, but it has been very consistent that some follow through was achieved in the next few days. Below is the 3-day profit curve.

2019-11-05-2

We have tracked this study for a long time, and it is back again at new highs. Traders may want to keep this bit of evidence in mind as they formulate their short-term bias.

 

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A Columbus Day Edge Revisited

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 10/12/15) 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 are updated results of that study.

2019-10-14

I’ve circled some of the more impressive stats here. With 73% of trades profitable and winners over twice the size of losers risk/reward has been very favorable. This positive seasonal tendency may be worth some consideration today.

 

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The Weakest Week (2019 update)

As I have shown many times in the past, there isn’t a more reliable time of the year to have a selloff than this upcoming week. I have often referred to is as “The Weakest Week”. Since 1960 the week following the 3rd Friday in September has produced the most bearish results of any week. Below is a graphic to show how this upcoming week has played out over time.

2019-09-20-1

As you can see the bearish tendency has been pretty consistent over the last 59 years. There was a stretch in the late 80’s where there was a series of mild up years. Since 1990 it has been pretty much all downhill. Below is a table showing results of buying Sept. op-ex Friday and then selling X days later from 1990 – 2018.

2019-09-20-2

The consistency and net results appear quite strong. I note the only instances that didn’t post a lower close at some point during the following week was in 2001 and 2017. The 9/11 attacks certainly made for unusual circumstances in 2001, and 2017 did not see a decline, but it only rose 2 points, so it was not much of a victory for the bulls.

 

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Post-Announcement Fed Day Returns Since Powell Arrived

I have documented before the tough time that Fed Days have had since Chairman Powell took over in February of 2018. I have also shown that the historically bullish Fed Day edge has primarily played out before the Fed announcement is even made. So today I thought I would simply show how SPY has performed between the time of the announcement and the NYSE close on Fed Days since Mr. Powell took over.

2019-09-17

No big surprise here. The market has struggled. We’ll see if it likes tomorrow’s announcement any better. Many more Fed related studies can be found here.

Wishing you and yours a very merry Fed Day!

 

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The Great Rotation Continues

Tuesday night on Twitter I showed how Monday and Tuesday saw a massive rotation among S&P 500 constituents. The top stocks over the 1-year period leading up to last Friday had all seen substantial selling during Monday and Tuesday. And the bottom stocks had all rallied strongly. This all happened with almost zero net change to the SPX index. I decided to follow up on that study today to see how those stocks made out with the SPX rally on Wednesday. Below are updated tables. The right-hand columns show performance on Wednesday.

2019-09-12

We see that even with the market rally on Wednesday the Great Rotation continued. All 10 of the bottom ranked stocks rallied further on Wednesday. Meanwhile, 7 of the 10 top ranked stocks underwent further selling. The split was not as drastic as Mon-Tues. Wednesday the bottom ranked stocks outperformed the top stocks by about 2% on average. Over the Monday – Tuesday period it was a 15.5% outperformance. Still, anyone running a long-short momentum strategy was not provided any relief on Wednesday. I am working on some deeper research exploring historical implications of violent rotations like these.

I will note at this point that swing traders may be able to find some decent bounce candidates on the Top ranked list. Strong short-term pullbacks during longer-term uptrends will often create solid short-term buying opportunities. The stocks on the left generally fit that description nicely. But with such unusual market action, this is not your typical pullback for many stocks, and risks could be elevated. Caveat emptor.

 

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What A Leading Advance/Decline Line Has Meant Historically

I have seen a good amount of chatter this week about the recent highs in the NYSE Advance/Decline line and other breadth measures showing bullish strength. The advance/decline line simply takes the net number of advancing NYSE stocks on a daily basis and then sums that number from one day to the next, making a line. If the line is moving up, that means there are more advancing stocks than declining stocks. A move lower mean there are more decliners. My A/D line Amibroker chart can be seen below.

2019-09-09-1

The move to a new high is clear. And having that happen ahead of an SPX new high is generally regarded as a positive. So I decided to run some studies and examine other times the NYSE A/D line broke out to a 1-year high while SPX had not hit a new high for at least a month. The table below shows results going back to 2003.

2019-09-09-2

Numbers here are strong across the board. I looked at several profit curves in this weekend’s subscriber letter (click for free trial). I’ll focus on the 20-day results here on the blog. Below is a look at the profit curve for the 20-day test.

2019-09-09-3

That is a steady and impressive upslope. The intermediate-term implications of the A/D line hitting leading new highs since the end of the 2000 – early 2003 bear appear to have been quite bullish. Interestingly, I found performance of this study prior to 2003 to be streaky and less reliable. This can be seen in the chart below, which goes back to 1931.

2019-09-09-4

It certainly appears the leading A/D line has been a positive over the last 16 years. And I am viewing it as a positive right now. But the edge has not always been as reliable. So as with all studies, it is worth keeping an eye on to make sure the bullish message persists.

 

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An Updated Look At SPX Performance After Labor Day

A couple of years ago on the blog I showed a study suggesting that Labor Day week performance has been somewhat dependent on whether the market has rallied over the 20 trading days leading up to it. I decided to update that study today.  Below is a look at post-Labor Day performance when the previous 20 days have seen gains versus losses. First lets look at rises into the holiday (unlike now).

2019-09-02-1

This shows a poor performance record when there has been a rise in the market. But in 2019 SPX has posted a decline over the last 20 days. So we are facing the below scenario.

2019-09-02-2

Just the opposite here. The market appears to lean towards gains during Labor Day week under such circumstances. Of course there are a few caveats to keep in mind. For one, instances are a bit low. Secondly, while we are down over the 20-day period it is not by much, and with SPX near the top of its recent range, any “oversold” edge here may not be in place. Still, the results do give us some information to consider as we head back to work on Tuesday. Happy Labor Day!

 

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Why the CBI is Zero Despite Friday’s Big Drop

I received several notes on Friday from people that were curious about the Quantifiable Edges Capitualtive Breadth Indicator (CBI). The CBI actually closed at zero on Friday. Often when we see large selloffs there will be a spike in the CBI. The CBI is a count of all the active Catapult signals, which are tracked in the Quantifiable Edges Subscriber Letter. They basically look for a trend to be in place, and then a downward acceleration of that trend. So the CBI will typically spike when you have a good number of stocks experiencing prolonged selloffs. And that is most likely to occur while the SPX is also undergoing a sustained selloff. The chart below shows the CBI action over the last year.

2019-08-24

As you can see, the spikes occurred when the persistent selling became overdone. But the recent action is not persistent selling. It is exaggerated choppiness. So the CBI is dormant, and it will likely remain so unless we see a substantial breakdown.

 

Much more information is available on the CBI in the free CBI Research Paper.

 

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A Historical Look at Opex Week in August

It is options expiration week this week. Options expiration weeks often have a bullish tendency. You can see it broken down by month in this post from March. But the summer months of June, July, & August have not seen that same bullish tendency.

August’s performance has actually been net negative. June is the only other negative month. Below is a look at the profit curve for August.

2019-08-12

Very inconsistent, and worse lately. Opex in August has not shown the typical opex week bullish tendency.

 

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Prep for the Fed Day with Quantifiable Edges Free Webinar

I am going to do a brief webinar on Monday covering my favorite Fed Day edges so that traders may prepare for Wednesday’s action ahead of time. I have published a large amount of research over the years related to Fed Days, some of which can be found on the blog. The Quantifiable Edges Fed Day Prep Webinar will be on Monday, July 29th at 4:15pm EST (shortly after the NYSE close). To sign up, just use the link below. The presentation will be about 20 minutes, highlighting some of the strongest edges related to Fed Days, and some things to watch out for as we approach it. I will also stick around for Q&A afterwards.

https://quantifiableedges.com/subscribers/signup/fedprep

And in case the time is not convenient for you, anyone that signs up for the webinar will receive a link to the recording.

 

 

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The $VIX / $SPX Action Is Suggesting A Brief Pullback

While the SPX closed up the VIX also rose. Most often they trade opposite each other, so this kind of action is somewhat unusual. But VIX has a tendency to decline going into the weekend (Friday afternoons), and then rise when it returns from the weekend. So to see this action on the first trading day of the week is less unusual than at any other time. Still, combined with the SPX 50-day high, it has often been followed by a dip in the next few days. This can be seen in the study below, which appeared in Monday’s Quantifinder.

2019-07-16

Results here appear somewhat bearish over the 1st 1-2 days, and suggest a brief pullback is likely. But I am also seeing evidence that the persistent move up to new highs reduces the probability of a substantial selloff in the near-term. So while there appears to be a possible short-term downside edge based on the study above, I don’t view the current setup as very compelling for shorts. This is something I discussed in more detail in last night’s subscriber letter. (Click here for a free trial.)

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Trader Feedback On Quant Edges Swing Trading Course

The first group of traders has now completed the Quant Edges Swing Trading Course, and the feedback we received has been tremendous. The course is self-paced, and all Q&A sessions were documented and recorded, so you won’t miss out any anything if you decide to take it now. And you can still get the course for $150 off if you support Rob Hanna’s MS Ride fundraiser with a donation of $35 or more between now and August 30th! (Details here.)

 

Below is a sampling of the feedback we received:

 

The course is well organized and well presented. The level of detail and coverage was impressive. It was great to see the thought process involved when evaluating an edge. I especially liked the spreadsheets because of their detail and sorting capabilities. This allowed me to see how strategies performed in different environments. The Amibroker code was also a big plus.

 

I had done no quant studies or analysis before this course and was looking for a good intro and this one was excellent. It gave me good insight into how to look for tendencies via raw studies, try to combine those into a strategy and test that. And Rob expanded the course to various areas to lots of interesting and (to me) new ideas I hadn’t thought of such as Double B, SOMA flows and that you can’t rely on historical NYSE/SPX opening data, among many of the gems and insights of the course. This is a course whose material I’ll need to go through 4 or 5 times to really absorb.

 

Learned a lot about how quantitative trading works and it gave me a great stepping stone into learning how to develop systems and motivated me to learn how to code in AFL and use Amibroker, which I did not even know existed prior to the course. Basic systems coding in Amibroker was surprisingly easy to learn coming from a non programming background.

 

Rob put in great effort to continue to build out the course through the Q&A and added content to provide more information for course participants. Rob’s effort and additional work moved this course from an 8 to a 10 for me.

 

The build up from tendencies (studies) to strategies was excellent. Discussion of the generally “right number” of indicators to have in a strategy. Having most of the studies/strategies be independent of Quantifiable Edges proprietary work (Aggregator, CBI) but also showing that they can be integrated is appreciated. The Fed and SOMA work was all new to me so really great and insightful. Providing the spreadsheets and Amibroker code – thank you! Good references for following work and reading (e.g., Bandy’s work). The extra effort Rob put in to answer a boat load of questions in each section was well appreciated. That helped round out much of the material in the course and put things in context.

 

Looking at how each input (the vix, days up/down etc) affects returns was great. The best section to me was the one that put several of the inputs together and studied how to use them in conjunction with each other to build a robust system.

 

I am more of a position trader (2-8 weeks). Even though the timeframe was too short for my taste, I learned plenty from your research process, explanations and techniques. Thanks!

 

Informative, well explained, and for me just plain fun!

 

I cannot compliment you enough on the depth and detail you go into during the course. Though I have traded for many years, the value I received from this course was incredible.

 

Since new course participants will only have access to the recordings of the Q&A sessions, each new purchase comes complete with 1 hour of Q&A / consulting from Rob. Join our group of graduates and incorporate quant edges into your swing trading today!

 

The Fed’s Driving With A Foot On Each Pedal

Part of the reason the market has rallied over the past few days is an indication that a rate cut is likely coming as soon as the next Fed meeting. It is interesting timing for the Fed to begin cutting rates, since their QT program still remains in place (though it is winding down). By reducing the SOMA at the same time they are cutting rates, the Fed is basically going to be driving with one foot on each pedal. They’ll be instituting both a contractionary policy and a stimulative policy at the same time. While curious, that is not unprecedented. I decided to examine SPX performance since 2003 during weeks where 1) the most recent interest rate move was lower, and 2) the SOMA contracted. Results of starting with a $10,000 portfolio and not including any trading costs can be seen below.

2019-07-15

Results overall have been fairly poor, and very inconsistent. Not terribly encouraging. Of course rates were already at zero for many of the past instances. And the SOMA decreases occurred during policies like Operation Twist, where there was not actually an overall reduction in the SOMA, but rather week to week oscillations. So past comparisons like in the chart above are not perfect. If the Fed does cut rates, it would also be very unusual from the standpoint that the market is currently at new highs. Looking back to 1990, the only other instance I could find where the Fed began a rate cutting cycle while the SPX was within 1% of a 200-day high was in July of 1995. That rate cut was followed by 7 months of continued rallying for the market. Bottom line is that I am seeing mixed messages using difficult comparables with regards to the Fed. Anticipating market reaction in such an environment can be difficult. I will likely be relying more on some of my other indicators in the coming months to help set my market bias.

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Post Opex Weakness Typical in June

In March I discussed how the weeks following options expiration in March, June, and September have been the worst 3 weeks of the year. Below I have updated the June stats and profit, which I also showed last June.

2019-06-23

The strong, steady downslope and bearish numbers suggest we are entering a very weak seasonal period. It will be interesting to see how the market holds up this week, and whether the recent strong upside momentum can overcome the bearish headwind.

 

Speaking of headwinds, the Quantifiable Edges MS Ride fundraiser is ongoing, and readers generosity to this point has been outstanding. Unfortunately, I broke my wrist last week playing basketball. So I will not be able to face the Cape Cod headwinds on my bike. But I will still be volunteering for the weekend and helping raise funds towards the cause. More info on how to contribute and how to receive research and discounts from Quantifiable Edges with your donations can be found here.

Discounts, Code, & Research Available from Quantifiable Edges to Help Fight Multiple Sclerosis (MS)!

The last two years Quantifiable Edges readers helped me raise over $4000 each year for Multiple Sclerosis (MS), and this year I am again upping the incentive for people to donate!  I am happy for any size donation, but I have again created 2 donation levels this year so that people are incented to give more:

 

Thank You Level:

One bit of research that Quantifiable Edges has become known for are the many studies I have published on Fed Days. In fact, you could say I wrote the book on Fed Days. And the pdf version of that book sells for $25. But between now and June 30th I will send you a zip file containing the following if you make any size donation to my MS fund raiser page.

  1. The Quantifiable Edges Guide to Fed Days (pdf version)
  2. My “Fed Day” code for both Tradestation and Amibroker (new this year) that identifies every Fed Day from 1980 –2020.  (Updated from last year’s code with the new scheduled Fed meeting dates).
  3. Text file versions of the code in case you do not use Tradesation or Amibroker, but still want the full list of dates, or to translate the code into another program for your own testing.

Note that the code has only been offered with the book as part of the MS fundraiser. So even if you already have the book – make a donation and get the code!  Or if you donated last year, get the updated code!

 

Big Thank You Level:

Donate $35 or more and you will get everything above and I will also include a coupon good for $50 off any Quantifiable Edges Products, other than recurring (gold or silver) subscriptions.  This includes systems, courses, code, or research that Quantifiable Edges has to offer.  And if you want to use the coupon towards the new Quant Edges Swing Trading Course between now and when fundraising ends, I’ll make that $50 coupon a $150 coupon!  Quantifiable Edges will be coming out with more products later this year.  So even if you already own everything, you can still apply your $50 coupon to future offerings.  There is no expiration date.  And while it can only be used once per person, if you donated last year and have not yet used that coupon, then I can set it up so you can combine the 2018 and 2019 $50 coupons into one $100 coupon if you wish.

 

Why am I doing this?

Check out my personal fundraising page to learn the story of how I became involved in raising money for MS.

 

I’ll put in the training, endure the pain, and brave the traffic, but I need your help in fundraising efforts!

 

The Process:

1) Go to my personal fund raising page:

http://main.nationalmssociety.org/goto/olderslower

 

2) Make a donation of any size (but feel free to be generous!).  Note: The MS donation page makes it look like the min amount is $35.  But you can click the “other amount” button on the right and enter whatever amount you feel appropriate.  ($35 is the minimum to get the $50 coupon.)  Even small gifts are greatly appreciated!

 

3) Send an email to support@quantifiableedges.com with your receipt from the MS Society, and within 24 hours we will send you the above Quantifiable Edge Fed Day MS Ride package, (if your donation is $35 or more, please specify whether you prefer the $50 off anything coupon or the $150 off the Quant Edges Swing Trading Course). If you don’t receive the package in 24 hours, feel free to send us a 2nd email, because that means we likely missed the 1st one, or post a comment below letting us know we somehow missed it!

 

Thanks for your support and generosity! I hope the Quantifiable Edges Fed Day MS Ride package will pay you back your donation size and much more in your trading accounts!  And I hope together we can make a big positive difference in the fight against MS!