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!

 

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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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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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