SPX Performance Following Big Friday Selloffs

In this weekend’s subscriber letter I showed several studies suggesting the Friday selling could be an overreaction and that a bounce early this week appears likely. I noted that Fridays are often viewed as the day most likely to have a downside overreaction. This is partly because people may be looking to bail out ahead of the weekend and avoid getting hurt by further bad news. This concept is something I have discussed in the past here on the blog, mostly recently last November.

In recent years the bounce has not always occurred on Monday. Sometimes we saw more selling on Monday before the rebound started on “Turnaround” Tuesday. A couple of interesting charts from the letter are shown below. They look at performance following Fridays that close down over 2.5%. The 1st is a profit curve assuming a 1-day holding period. The 2nd chart assumes a 2-day holding period.

1-day SPX returns after 2.5% down on Friday
SPX 2-day returns after 2.5% down Friday

So in recent years the bounce has not as reliably begun on Monday, but it almost always did by Tuesday afternoon. We’ll see if form holds this week and we get a bounce in the next few days.

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Holy Bullish Thursday!!!!

Stock market performance leading up to and around many holidays has often been bullish. This is something I have written about several times over the years. Holy Thursday is one such day that has done quite well. I have shown Holy Thursday stats a few times in the past. The chart and statistics below are all updated and zoomed in from previous studies to just show the last 24 years.

Holy Thursday SPX returns

Strong numbers and an impressive move from lower left to upper right suggests the market could have a seasonal wind at its back on Thursday.

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A Simple Turnaround Tuesday Study

As I have documented numerous times, “Turnaround Tuesday” has generally been the best day of the week under many circumstances for the market to begin to mount a bounce. Below is a simple look at 2-day pullbacks when SPX is below the 200ma and we are heading into Tuesday.

Turnaround Tuesday for SPX

The numbers appear quite bullish and the curve has seen an upward acceleration. Turnaround Tuesday’s have provided many edges over the years. Traders may want to keep this in mind on Tuesday.

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Yield Curve Inversions and SPX Returns

There has been a lot of talk recently about yield curve inversions and whether that means a recession is on the way, and how soon? And if there is a recession, will there also be a bear market? I decided to forget about economic forecast and just look at how the SPX did after a curve inversion. I looked at both the 2yr/10yr and the 3mo/10yr combinations. For the study I used Norgate Data, and looked back as far as my database went, which was 1976 for the 2yr rate and 1981 for the 3mo. Results can be found below.

SPX returns after yield curve inversions

Note that 21 trading days is approximately 1 month. So 42 days is two months, 126 days is 6 months, 252 days is a year…you get it.

Not many instances to build out a case here. Some good and some bad numbers. More bullish than bearish. Overall, the initial inversion does not seem to be a great timing signal. Academics can argue and tv talking heads can blather about potential consequences, but traders should probably look to better timing devices to make their market judgements. I don’t see myself factoring this into any trading decisions.

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Positive $SPX Seasonality After the 4th Friday in March

There are some bullish forces kicking in the next few weeks. For one, the week after the 4th Friday in March has been a strong one over the last 24 years. (Not as much before that.) We can see this in the study below, which I showed in this weekend’s subscriber letter.

Positive SPX seasonality after 4th Friday in March

That is an encouraging looking curve and bullish stats. Traders may want to keep this in mind as they formulate their market bias this week.

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$SPY Short-Term Overbought In A Downtrend

In last night’s subscriber letter I showed a few studies suggesting the market was short-term overbought in a long-term downtrend, and that there appeared to be a short-term downside edge. Below is one of those studies, which also appeared in the Quantifinder yesterday afternoon.

SPY perf after run-up in downtrend

Those are some powerful numbers. And only 1 instance did not post a lower close in the next 3 days. Below is a look at the 4-day profit curve.

Despite the recent bump up, that is a long, persistent downslope. Traders may want to consider this as they set their market bias.

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Historical Performance After the State of the Union

With tonight being the State of the Union Address I decided to take another look at an old study that examined SPX performance following past speeches. The data table below looks back to 1982. There were a few instances, such as 2001 and 2009 where the speech was not an official “State of the Union”, but was delivered under a different name. I have included those speeches in the results as well.

The stats do not suggest much of an edge. But the profit curves seem to tell a more interesting story. Here is the 5-day curve.

All the curves look something like this in that since the turn of the century the market has tumbled after these speeches rather than been inspired by them. I guess they just don’t write speeches like they used to.

Talking Edges: Options Strategies for Directional Trades with Ali Pashaei

On Thursday this week I will be hosting a Webcast with guest Ali Pashaei. You are invited to attend live and ask questions if you wish. I will also be recording and posting it up to the Quantifiable Edges YouTube channel.

I’ve known Ali for a long time. He is a professional options trader, and he also runs the Options In Practice website, where he works with traders on implementing options strategies.

Ali and I will be discussing the use of options for directional trades – primarily short-term directional trades. I’m often asked by new Quantifiable Edges subscribers about taking the trade ideas I post in the letter, or utilizing the QE Numbered Systems, and implementing an option strategy around them. Ali will be sharing insights as a professional options trader on some of his favorite approaches to take advantage of short-term directional edges. I’m really looking forward to our talk, and hope you’ll find some of the ideas beneficial as well.

So join me on Thursday at noon EST using the link below, or if you cannot make it, keep your eye out on Friday, when I will be posting it up to YouTube and the Quantifiable Edges blog.

Video and Screen Sharing:

Online meeting ID: robh60

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

Once signed in, click on the phone icon:

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

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:

Online meeting ID: robh60

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

Once signed in, click on the phone icon:

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Then choose “Mic and Speakers” 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 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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