Oversold $NDX does not bounce as reliably as $SPX

The NDX was hit especially hard last week. It fell 4.5% on the week and Friday was the lowest close since October. Many times we will see multi-day pullbacks and/or intermediate-term lows during a long-term uptrend suggest the market is primed for a bounce. But in running some studies on NDX this weekend, I found results like below.

NDX oversold shows no hint of upside edge

Such setups have been a tossup over the following days. SPX traders might find these results surprising. But SPX and NDX have exhibited somewhat different tendencies over the years. The SPX is more prone to mean reversion than the NDX. NDX tends to trend better. One example of this can be seen by looking at the same study using SPX.

SPX oversold tends to bounce (but it is not there yet)

These numbers are quite compelling. Of course, SPX is nowhere near its 2-month low. So this is not setting up.

I will note I am seeing some mild evidence that a bounce is likely in the next few days. But there could be more pain before it happens, as demonstrated by the NDX study and the fact that the SPX isn’t nearly as oversold.

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‘Twas 3 Nights Before Christmas: Updated NASDAQ Version

I’ve posted and updated the “Twas 3 Nights Before Christmas” study on the blog here several times since 2008. The study will kick in at the close today (12/21). 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.

NASDAQ Rally Around Christmas

The stats in this table are strong across the board.  An average year posted a gain of about 2.4% over the next 8 days. The note at the bottom shows the reliability of a bounce at some point has been nothing short of incredible. Traders may want to keep this study in mind over the next several days.

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New Webinar: Introduction to Capital Advisors 360 Separately Managed Accounts

Date and time: 12/13/2021 at 4:15pm EST

Duration: About 30 minutes + Q&A

Description: 

Join Rob Hanna and founder Jeff Pietsch to learn about their work at Capital Advisors, 360, LLC. Understand how you can have your own separately managed account traded for you using many of the same models that Rob and Jeff use to trade their own money. Of course several of Rob’s models utilize concepts discussed here at Quantifiable Edges since 2008. During the webinar we’ll cover the following topics:

  • What are separately managed accounts, and what does it take to set one up?
  • Why do many people utilize them?
  • What are some of the models Rob Hanna manages, and how have they performed over the last few years?
  • What other kinds of models are available at Capital Advisors 360, outside of those Rob manages?
  • And we’ll save lots of time to answer your questions!

If you would like to register for the webinar, to make sure you receive a recording, you may do so here.

Video and Screen Sharing:

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A recording will be made available by Tuesday afternoon for anyone that registers for the webinar.

Action After Strong Friday Selloffs

Today’s study is one of several that will be appearing in the Quantifiable Edges Subscriber Letter in a few hours. Quantifiable Edges Black Friday sale has been extended through Cyber-Monday. Act now to take advantage. After Monday – its gone.

Black Friday was a tough one for the market, with the major indices all closing down over 2%, and the VIX spiking over 10 points to close at 28.62.

Big drops on Fridays can be interesting. Both the Crash of ’29 and the Crash of ’87 happened on Monday. The Crash of ’87 is still remembered by some traders that are active today (though it is getting less and less each year). In 1987, there was a strong selloff on Friday and then all hell broke loose on Monday. But since then, strong Friday selloffs have commonly been followed by bounces in the following days. Perhaps this is due to the fact that fear of a crash causes what might otherwise be an ordinary selloff to become exaggerated and overdone on Fridays. Or perhaps it is just that people don’t want to hold over the weekend. Whatever the reason, the tendency to bounce has been strong. The study below is one I have showed for over 10 years. It defines a strong selloff as more than 1.5x the recent (20-day) average true range.

$SPX bounces after big Friday declines

The numbers here are all very impressive and suggest a strong bullish bias. Below is a look at the 6-day profit curve.

This edge has asserted itself for a long time.

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A Consolidation After A New $SPY High

The range over the last week has been very tight. Every SPY close in the 5 days since 11/16 has been within the intraday range of that 11/16/21 bar. It is said that consolidations are often resolved in the direction of the trend. This guideline suggests that we’re more likely to see another leg up from here than a breakdown. The study below tests this concept. It was last seen in the 11/15/19 letter and has been updated.

Consolidation at high level

It certainly appears to confirm the old technical adage. Results favor the long side over the immediate 3-day period and they are even more impressive when looking out 8 to 10 days. I will also note that the last 12 instances, dating back to January of 2007, have all closed higher 3 days later. 

Have a great Thanksgiving, and keep an eye out for the Quantifiable Edges Black Friday sale!

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Another Look At Thanksgiving Week

Note: Next week I will be having the annual “Black Friday” sale, which is the only sale I run during the year. If you think you might be interested in a subscription, then now might be a good time to take a free 1-week trial and see if Quantifiable Edges would be helpful for you.

The time around Thanksgiving has shown some strong tendencies – both bullish and bearish. I have discussed them a number of times over the years. In the updated table below I show SPX performance results based on the day of the week around Thanksgiving. The bottom row is the Monday of Thanksgiving week. The top row is the Monday after Thanksgiving.

SPX performance during Thanksgiving week

Monday and Tuesday of Thanksgiving week do not show a strong, consistent edge. But the data for both Wednesday and Friday looks quite strong. Both of those days have seen the S&P 500 rise at least 70% of the time between 1960 – 2020. The average instance managed to gain about 0.3% for each of the 2 days. (This is shown in the Avg Profit/Loss column where $300 would equal a 0.3% gain.) That is a hearty 1-day move. Meanwhile, the Monday after Thanksgiving has given back a good chunk the gains that the previous 2 days accumulated. It has declined 66% of the time and the average Monday after Thanksgiving saw a net loss of 0.32%.

In 2018 I gave a few more thoughts on the Wednesday edge and the importance of Tuesday’s action for Wednesday.

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Webinar: Considerations For Combining Models

Date and time: Thursday 11/11/2021 at 4:15pm EST & Saturday 11/13/2021 at 11:00am EST

Duration: 30-40 minutes + Q&A

At Capital Advisors 360, I manage some composite portfolios that include several different models I have developed over the years. Using a couple of the models I trade as examples, I will share several of the factors I consider when determining what models are likely to work well together. I will look at factors such as correlation, exposure levels, drawdown timing, and more. Traders should be able to take away some ideas on how to determine whether their own strategies are complimentary, and what to look for when considering additional strategies for their portfolio.

If you would like to register for the webinar, to make sure you receive a recording, you may do so here.

Otherwise, you may use the link below to simply join the webinar at the set time:

Online Meeting Link: https://join.freeconferencecall.com/robh60

Once signed in, click on the phone icon:

Then choose “Mic and Speakers” or “Computer Audio” and you should be able to hear everything through your speakers/headset.

Alternatively, you may use the dial-in info below if you wish. Please note it is not a toll-free number.

Alternate Dial-In Info:

Dial-in number: (605) 313-5497(U.S.)

Access Code: 181851#

International Dial-in Numbers: View List

A recording will be made available by Sunday afternoon for anyone that registers for the webinar.

A Rare Year-To-Date $VIX Low In October

The VIX posted its lowest close since the 2020 COVID Crash on Thursday. October is known for its volatility, so as you might expect, posting a low in implied volatility during October is somewhat unusual. Looking back to 1990, this is just the 6th time that has occurred. I’ve listed all of them below, along with forward SPX results. (Note, only the 1st instance is listed. Some years there were multiple instances, but I did not include repeats.)

When VIX closes at a low in October

Five instances is too few to draw solid conclusions. But I did find the results interesting. I noted that 4 of them occurred during the “lost decade” of 2000 – 2009, when stocks showed no gains over 10 years. Still, all of those instances were followed by gains between 2-12 months out. And so was the 2017 instance.

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Why a Bounce on a Friday is Encouraging

Friday saw the market bounce after several indices closing at multi-month lows on Thursday. Fridays are interesting in that they are the least likely day of the week for a selloff to end or a rally to begin. But when rallies do start on a Friday, they have shown the best odds of success of any day of the week. I’ve seen this a number of ways over the years. The study below is one simple way to look at it. It examines times the market closed up the day after closing at a 21-day low the day before. Results are broken down by day of the week, and also by holding period.

Bounces by day of week

Looking out 10,15,20, and 25 days, Friday has the best stats of any day. And in most cases, none of the other days are even close. So if you are looking for an encouraging intermediate-term sign based on Friday’s action, this appears to be one.

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QE Subscription Prices About to Rise. Lock in the Lower Rate Now!

If you have been considering a Quantifiable Edges subscription, now is a great time to lock in your price.

While the Fed is ignoring inflation, one place that prices will soon be going up is at Quantifiable Edges. After Sunday, October 3rd, all gold and silver subscriptions with see a price increase. But you can lock in your prices at the current level by signing up for a subscription before then. I have rarely raised prices in the past, and have always grandfathered in current subscribers at their initial price level. (Yes, I still have a subscriber paying the original annual subscription fee from 2008-09.)

Of course the Bureau of Labor Statistics, who calculates CPI, would likely say that a Quantifiable Edges Gold Subscription has seen a price decline after making their “quality adjustments”. New features over the years have continued to add value. This includes the popular QE Seasonality Calendars and the code (Tradestation, Excel, and Amibroker) that goes along with the Calendars for backtesting, which was released near the beginning of this year.

So whether you prefer to pay monthly or annually, you can lock in the current rates now, before they go up this weekend. Feel free to reach out with any questions. Here is our Gold Subscription page and our Silver Subscription page.

October has a History of Big Swings

October is a month that is known for volatility. And that is a well-earned reputation. Crashes in 1929, 1987, and 2008 all occurred in October. But volatility cuts both ways. If you break the year down into 1-week periods, October also contains some of the strongest seasonal edges of the year. There have been some very big swings in October, and not just by Mr. October.

Reggie Jackson card

Breaking the year down by week is something I have done numerous times over the years, and it has provided some interesting insights. The table below shows stats back to 1985. I chose 1985 as the start date because SPX options trading began in 1984, so 1985 is the 1st full year where there was an options expiration schedule. Action on and around options expiration, which occurs on the 3rd Friday of each month, seems to generate some seasonal tendencies. So this study encompasses the full range of time that SPX options have been in existence.

Week of year SPX performance

You’ll note that the highlighted weeks are the October weeks. It’s amazing that all 5 potential weeks in October are included in either the Best 10 or the Worst 10 weeks of the year. Weeks are ranked based on Avg Trade (last column).

Weeks following the 1st and 3rd Friday in October have been among the worst on average. I’ll also note that the 2 largest “max losing trades” occurred following the 1st and 3rd Friday in October. They were a 12% and an 18% drop.

Weeks following the 2nd, 4th, and 5th Fridays in October made up 3 of the best 10 weeks of the year on average. And they show three of the largest winners as well, with 7.2%, 7.3% and 10.5% max gains.

As I said, October can be volatile. There could easily be some strong moves up and down throughout the month, and traders may want to keep this in mind for position sizing, or if they are making volatility trades.

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When SPY is up > 1% before the Fed Day announcement

The market is off to a strong start to the day, with SPX up over 1% at around noon EST. I decided to look back at all times the market was up at least 1% at 2pm on a Fed Day (the typical time for a statement release). Below is the full list of instances and their 2pm – 4pm EST performance to finish the day.

SPX up > 1% pre-Fed announcement.

Returns here are mixed, and don’t suggest a strong directional edge either way. There have been some strong moves in both directions after the announcement. I also filtered for times SPY was in a long-term uptrend (above its 200-day moving average). Those results are below.

up 1% pre-Fed with 200ma filter

These results are a bit more encouraging. Six of the ten instances saw further gains. One finished flat vs 2pm. The other three saw only mild declines, but still finished the day overall positive. Should be an interesting finish to the day. The good start seems to be a potential positive.

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SPX Declines Into A Fed Day

Fed Days often generate compelling studies to consider and share in the nightly subscriber letter.  I have also covered them in the blog many times over the years. A Fed Day is one of eight days per year that the Federal Reserve concludes one of their scheduled meetings and makes a policy announcement.  Wednesday is a Fed Day.  Historically, Fed Days have had a bullish inclination.  That inclination has been even stronger when there has been selling heading into the Fed Day. The study below examines other times that SPX was in a long-term uptrend, but closed down for at least the third day in a row going into the Fed Day.

$SPX 3 down into a Fed Day has been bullish over the next 1-5 days

These are some very encouraging numbers for the bulls.  Below is the list of instances.

$SPX 3 down days into Fed Day - list of instances

The setup has certainly been potent over a long period of time.  There has not been a loser for the 4-day holding period since 1986.  And every instance back to 1982 has closed higher than the entry price at some point in the next 4 days. Of course anything can happen when it comes to the market, but evidence here suggests a substantial upside edge over the next few days.

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