Big Gaps Down In Already Bad Markets

SPX futures are locked limit down 5% as I write this Sunday night. The small study below looks at all other times 1) SPY was already short-term oversold (closed at a 5-day low), and 2) gapped down at least 3%, and 3) opened below the lowest close of the previous 50 days. Below is the full list of instances along with performance following each:

2020-03-08

A few notes:

  • These numbers look pretty wonderful. Don’t get too excited.
  • Performance only goes back to the inception of SPY. I did that because historical open/high/low prices for SPX are not accurate. Just closes. So measuring gap sizes and high/low levels is impossible. Hence the somewhat short history.
  • There are only 6 instances. You generally do not want to make too much of just 6 instances. What this does do well is make the point that the market is acting far outside of normal.
  • Not listed among these 6 instances is the 10/6/2008 instance, because that “only” gapped down 2.89% to start the day (just missing the 3% criteria). From the open that day to the low of the next 5 days, SPY lost as much as 22% intraday.
  • Had SPY existed in 1987, Black Monday would almost certainly have qualified.
  • It is tough to identify a high-probability play on a combination of forces unlike anything seen prior.

I also ran the study without the requirement that the day before closed at a 5-day low. There were a few more instances. Here is that table.

2020-03-08-2

Good luck trading this week!

 

 

 

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An Updated Look At Huge 1-Day CBI Spikes

The Quantifiable Edges Capitulative Breadth Indicator (CBI) spiked up 14 points on Tuesday – rising from 5 up to 19. In the CBI Research Paper I showed that a CBI total of 10 or more has generally been a bullish sign. So 14 is a very strong 1-day change. In June I examined all other instances where the CBI spiked by at least 10 points in 1 day. I have updated that research below.

2020-02-26

The setup is rare, but there are some very strong numbers here. Over the next week the average instance gained 3.9%, and the average 18-day % gain was 6.6%. Below is a look at all the individual instances.

2020-02-26-2

Here we see that the bounces have typically been strong, but they have not always been immediate. 2002, 2008, and 2015 all show some additional scary selling before the big reversal arrived. The CBI is suggesting a strong chance of a sizable bounce over the next week or more. It may or may not begin on Wednesday.

 

 

 

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When The Market Gaps Down Huge During A Long-Term Uptrend

With corona virus news scaring the market pre-open today, I decided to look back at other time SPY has gapped down more than 2% when it had been in a long-term uptrend. As you might suspect, instances have been fairly rare. Looking ack to SPY inception, there were only 16 other instances. And upping the filter to 2.5%, the instances drop to just 5. (As I type, SPY is indicating 2.4% below Friday’s close with about 1 hour until the open.)

2020-02-24

Every scare is different. But most of the time in the past we have seen a decent bounce at some point in the next few days. Today, and the next few days should be interesting. (But the market is often interesting to me, and 2020 does not appear like it is going to be dull.)

 

 

 

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Persistency Beyond Almost All Other Rallies

Last week I noted the current rally was reaching historical extremes for persistency. Here I will look at another study from the subscriber letter, and then update last week’s study. In last night’s letter I looked at all times back to the inception of the NASDAQ in 1971 in which both SPX and the NASDAQ Composite closed above their 10ma for at least 30 days in a row. The short list is below.

2020-01-22

Only 3 previous instances. And one of those was in the current move higher during November. Of course another way to look at it is how I did last week, in that SPX has only seen 5 closes below the 10ma since October 10th. We have now reached the point where just 5 of the last 70 trading days have closed below the 10ma. Other times where that has happened are 1972 (March), 1965 (Nov), and 1933 (Jul). That is it. And if it reaches 5 out of 71 days on Wednesday, then it is just 1972 and 1933 that you can point to.

Finding short-term trading opportunities in such a market can be difficult. It is tough to find a meaningful historical edge when the market is trading so far beyond historical norms.

 

 

 

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The Remarkable Persistency of the “not QE” Rally

The persistency of the rally over the last 3 months has been amazing. The chart below is of SPX. I have marked where the Fed announced the “not QE” program back in October. The blue line is the 10-day moving average of SPX.

2020-01-16

I have noted a few times lately that the market has gone an extended period without any closes below the 10ma. But what is more remarkable is how few days it has closed below the 10ma since “not QE” was announced on October 11th. In the last 67 trading days, there have only been 5 closes below the 10ma for SPX. There has not been a 67-day period with only 5 closes below the 10ma since 1972. And looking back to 1928 (when the S&P 500 was the S&P 90), there have only been 6 other instances: September 1929, July 1933, March 1943, June 1957, November 1965, and late February / early March of 1972. In other words, the persistency of this rally is extremely rare, and over the last 48 years, it is unheard of.

 

Note: The article above is an excerpt from last night’s Quantifiable Edges Subscriber Letter

 

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The Most Wonderful Week of the Year…Until Last Year

I have written many times over the years about the bullish tendency of the market during opex week in December. I’ve even referred to it as “The Most Wonderful Week of the Year”. And it was…up until last year. So below is an updated look at the stats and profit curve for owning SPX from the close of the Friday before December opex to the close on December opex.

2019-12-16

That is a 7% loss you are looking at in 2018. So that will likely take several years to get over. But we are entering the time of year when the market typically has the seasonal winds at its back. And despite the 2018 December collapse, that is something traders may want to keep in mind this week (and even a bit longer).

 

 

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Historical Fed Day Performance By Chairperson

I have written about Fed Day edges for years. Much of the research can be found in the Fed Study category blog posts. Today I decided to share a chart showing historical performance on Fed Days over the course of the last 5 Fed chairpeople.

2019-12-10

Have a happy Fed Day tomorrow!

 

 

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Black Friday Sale at Quantifiable Edges!

We have decided to bring Black Friday to Quantifiable Edges for the 2nd time. We rarely have special sales at Quantifiable Edges, and have not had any since last year, so if you have been thinking about a subscription, or the Swing Trading Course, now is the best opportunity you’ll see for a long time.  Check out our best offers below to start trading with a Quantifiable Edge!

 

  • Quantifiable Edges Gold Annual (with access to the Market Timing Course)  – $850 for the next 13 months!  That is $550 savings versus a monthly subscription and a separate Market Timing Course purchase!  After the initial 13-month period, subscription will renew at the annual rate of $950.

 

  • Quantifiable Edges Annual Preview Offer  $32 for the last 32 days of the year, then $950 for 2020! For those who have never subscribed before, here is a low-cost extended look at all the gold subscription has to offer to help you finish off 2019 with a Quantifiable Edge.  This will renew at our low annual rate for 2020.

 

  • Quantifiable Edges Swing Trading Course $200 off. Down from $950 to $750! This is the lowest price ever offered for our highly rated course that teaches a quantified approach to swing trading.

 

The Quantifiable Edges Black Friday sale won’t last long, and it may never return.  To take advantage, simply use the link below now to sign up.

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Happy Thanksgiving!

 

When the Wednesday Before Thanksgiving Closes at a New High

Thanksgiving has some seasonal tendencies, with Wednesday and Friday often being bullish, and the Monday after being bearish. This year not only did Wednesday perform well, but it left the SPX at a new high heading into the holiday. So I decided to look back at other times SPX closed at a 50-day high on the day before Thanksgiving.

2019-11-28

Results here show a bearish inclination over the next 2 days. I will note that there were a couple instances that occurred just prior to the sample set that were mildly positive over the 2-day period. But the poor performance over the last 24 years (7 instances) is something I find notable and interesting. Below is the list of instances.

2019-11-28-2

The momentum heading into Thanksgiving certainly has not seemed to help at all. If recent history holds up, we could see a dip between now and Monday evening.

 

 

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One Look At What Recent SPX Persistence Might Mean

One compelling study that triggered Tuesday in the Quantifinder suggested the recent persistent upmove is unlikely to abruptly end. (This is a theme we have seen many times over the years.) It considers what happens after the market moves up at least 5 days in a row to a 50-day high, and then pulls back.

2019-11-20-1

We see here a decent edge that becomes stronger and more consistent as you look out over the next several days. The 9-10 day time frame shows exceptional stats. The 2-day timeframe suggests a short-term boost is also likely. Below is a look at the profit curve for the 10-day holding period.

2019-11-20-2

The strong, steady upslope is impressive. The market is long overdue for a temporary pullback. But evidence like this suggests any dip in the coming days is likely just temporary. Traders may want to keep this in mind as they determine their bias over the next 1-10 days.

 

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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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