Elevated CBI And New SPX Low Carry Bullish Implications

Posted by in CBI, Quantitative Study October 25, 2018

As we approached the close I noted on Twitter (@QuantEdges) that the Quantifiable Edges Capitulative Breadth Index (CBI) was starting to spike. And the closer we got to 4pm EST, the higher it got. At the end of the day, the CBI finished at 10, which is a level I have long considered bullish. The combination of a 10+ CBI and a 50-day closing low is something I have shown in the past to be bullish for both the short and intermediate-term. The study below is taken directly from the CBI Research Paper, which I recommend checking out if you have not read it before, or reviewing some of the tables and charts to get a deeper understanding of market action both during and after such broad, strong, selloffs as we are currently seeing.

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These are very appealing results, from Day 1 right through day 20. And 20 days out there was just one loser and it only lost 0.2%. Meanwhile, the average gain of the other 18 instances was a sizable 5.7%. The CBI is suggesting we are in a bottoming process right now, and that the market is likely to move higher in the coming days and weeks.

Update: Below is the full list of instances along with their 20-day returns for those traders that wish to see the details.

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Why Tuesday’s Strong Reversal Suggests A Short-Term Edge For The Bulls

Posted by in Quantitative Study October 24, 2018

The market tested its recent lows on Tuesday, and that may have washed out the sellers, at least temporarily. Tuesday did not see a “turnaround” with a higher close, but it did manage to rally strongly off the lows. And the big gap lower, reversal upwards and higher close triggered a few interesting Quantifinder studies. The study below is one example of what I am seeing.  It simply looks for gaps to 50-day lows and partial reversals.

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These numbers are impressive, especially over the 1st couple of days. Below is a look at a 2-day profit curve.

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The move from lower left to upper right serves as some confirmation of the edge implied by the numbers. This suggests the rebound Tuesday was strong enough, and from a low enough level, that there is a good chance the market will continue to rally over the next few days. Short-term traders may want to take this into consideration when establishing their trading bias.

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A Look At How Fridays Create The Most Reliable Bounces

Posted by in Quantitative Study, seasonality October 14, 2018

Friday is generally not terribly reliable in being a day where the market bounces from a low. It is one of the least popular days for this to occur (along with Wednesday). But a potential positive about a Friday bounce is that when they do occur, they tend to be the most reliable moving forward. The below tables look at performance following a bounce from a 50-day low. The 1st table looks at performance 1 day later, and the 2nd table looks at performance 5 days later.

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In both cases we see that Friday is the day of the week that that shows the strongest odds moving forward. This is true whether you are looking at Net Profits, % Profitable, Win/Loss Ratio, Profit Factor, or Avg Trade. While Tuesday is the most likely day to see a bounce occur, Friday is the day where that bounce is most likely to stick. We’ll see if the bounce that started this past Friday can stick this week.

 

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Back to Back 50-day Lows and Extremely Low RSI(2) Readings

Posted by in Quantitative Study October 12, 2018

Strongly oversold markets often contain a short-term upside edge. Of course oversold can always become more oversold. Wednesday took the SPX down to a 50-day closing low. Additionally, many short-term price oscillators, like the RSI(2) showed extremely low readings. Further selling on Thursday meant another 50-day low and even lower readings. The study below appeared in the Quantifinder on Thursday afternoon. It looked at other times the SPX posted back-to-back 50-day lows and extremely low RSI(2) readings.

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Instances are a little lower than I typically like, but the numbers are incredibly bullish and seem worth noting. I am seeing several studies right now all suggesting a bounce is highly likely in the next few days. This study is just one such example.

 

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The Weakest Week – 2018 update

Posted by in Quantitative Study, seasonality September 24, 2018

From a seasonality standpoint, there isn’t a more reliable time of the year to have a selloff than this upcoming week. In the past I have referred to is as “The Weakest Week”. Since 1961 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.

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As you can see the bearish tendency has been pretty consistent over the last 57 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 – 2017.

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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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SPX Near Monthly Highs With RUT Near Monthly Lows

Posted by in Quantitative Study September 20, 2018

I have spoken a fair amount lately about the “split” market, and how that has historically been followed by declines. But not all kinds of splits are bad. Wednesday we saw the SPX rise while the RUT closed lower. That is not unusual on a 1-day basis. But it has now been several weeks in which they have been heading in opposite directions. RUT closed in the bottom 25% of its 20-day range on Wednesday while SPX closed in the top 25% of its 20-day range. The study below looks at other times where this occurred.

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It appears the lagging RUT in similar circumstances has not been a drag going forward, and that SPX has continued to flourish. Below is a look at a profit curve with a 40-day holding period.

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The strong, steady upslope serves as some confirmation of the upside edge. This adds to the crosswinds I am currently seeing for the intermediate-term. Evidence seems to be piling up on both sides of the bull/bear debate. But this study is one for the bulls.

 

 

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Our Extremely Split Market & What That Has Meant Historically

Posted by in Breadth, Quantitative Study September 16, 2018

One indicator that has gotten some play in the news lately is the Hindenburg Omen. In last weekend’s subscriber letter I discussed the Hindenburg Omen signal in detail. (Click here for a free trial.) A core premise behind the Hindenburg Omen is that there are a large number of stocks hitting both new highs and new lows. This indicates a split market. When this has happened for multiple days within a short time period, it has often led to market declines. Friday marked the 9th day in a row that NYSE new highs and new lows both exceeded 2.4% of total issues traded. The study below is from the Thursday night subscriber letter, and it looked at streaks of 8 days or more. (I’ll note I also took a quick look this weekend at streaks of 9 days, rather than 8. It barely changed anything.)

… But tonight I simply wanted to look at streaks of these type of split market conditions on their own. With data going back to 1970, I looked for other instances of 8 consecutive days with both new highs and new lows exceeding 2.4% of total issues. Results are below.

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There have not been many instances, but the returns after the ones so far have been quite bearish. Below is a list of all the instances assuming a 25-day holding period.

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Three of the six instances occurred in 1972. So with just 3 instances since 1972, I am not using this study to generate short-term expectations. But I thought results were intriguing enough to merit a mention. I also reduced the % requirement to see if that would provide some additional instances. Below are the 25 day-results for a 2.2% minimum.

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This does not look any better. How about a 2.0% requirement?

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Even the lone winner here had an 8.4% decline before turning slightly positive. Bottom line appears to be that having such a split market as we are currently seeing is quite rare. And historically it has not been a good thing for the market.

 

 

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New Highs On Low Volume During August

Posted by in Quantitative Study, volume August 25, 2018

SPX closed at a new all-time high on Friday. But NYSE volume came in at the lowest level since mid-July. Low volume at new highs can sometimes be a negative. Of course August frequently has low volume as many market participants are on vacation and not trading as actively. So I decided to look back at other times the SPX made a long-term high on light volume during the month of August. Results were bearish from 1-15 days out. The downside was generally realized over the next 3 days, though. Below is the list of instances along with their 3-day results.

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It appears these low-volume August moves to new highs have not seen short-term follow-through momentum in the past. The number of instances is low, but all 6 saw the market lower 3 days later. So perhaps it is worth some consideration when determining your market bias over the next few days.

 

 

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Pullbacks Heading Into Opex Week

Posted by in Quantitative Study, seasonality August 12, 2018

Opex week often carries some bullish seasonality. Pullbacks into strong seasonal periods will often offer substantial edges. The study below utilizes this concept and examines pullbacks of at least 3 days just prior to opex week.

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Numbers here are strong, and suggest a possible upside edge. Of course, August opex week has NOT been great. (Click here to see opex week broken down by month.) So that generates the question of whether the above study would be effective in August. Below are the instances that have previously occurred during August.

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There are only 3 instances, so you cannot draw any solid conclusions. But they do not suggest that August offers any kind of problem for the 1st study.

Traders may want to keep this information in mind as they consider their market bias over the next couple of days.

 

 

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NDX Leader Performance Over Several Weeks After Large Gaps Down (FB Follow-Up)

Posted by in Quantitative Study July 26, 2018

This is a follow-up from my FB post last night. Traders that looked to take advantage of a possible bounce from today’s open have seen moderate gains so far today. So what are the chances FB continues to bounce over the next several days and weeks? I re-looked at the study from last night, and examined how the other 9 instances performed over the next month.

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The chances for a continued bounce do not appear very good. Based on the small sample of 9 instances, gains for the next month actually topped out by the end of the entry date. You can see total gains and most stats above are strongest by simply selling the 1st bar. Of course these results should be taken with a grain of salt, since they were generated on a small sample size, in a different market, and in different stocks. But this one admittedly narrow view is not encouraging. And while it is not enough information to make a trade decision on, I thought traders would find it interesting.

 

Note: Tests were run on Amibroker using Norgate data.

 

 

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A Look At Past NDX Leaders That Gapped Down Big (For FB Traders)

Posted by in gaps, Quantitative Study July 26, 2018

After the market close on Wednesday, Facebook (FB) released earnings, and the news and future outlook was not viewed well. After closing at an all-time high on Wednesday, it traded down in excess of 25% in the after-hours. So it seems certain it will be opening Thursday with a sizable gap lower. I decided to take a look back at other leading NDX stocks that suffered large gaps down. I first checked for all stocks that:

  1. Closed at a 252-day (1-year) high yesterday
  2. Were a NDX constituent at the time
  3. Opened over 15% below yesterday’s close

Looking back to 1993, I found only 2 examples. They are shown below with results of buying at the open and selling the close the same day as the gap down.

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Amazingly, there have been only 2 instances in the last 25 years. Both saw sizable intraday bounces. Loosening the criteria to require only a 10% gap down yielded the following results.

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Most of the gains here were thanks to the COMS and VRTX trades from above. I also decided loosen the criteria further and require just a 5% gap down from a 1-year high. Below is a results summary.

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Exactly 100 instances and about even as to whether the stock bounced or sold off further. But winners outweighed losers by a sizable amount, making for strong net gains for the study.

Lastly, I went back to the 15% gap down requirement, but I loosened the other criteria so that a stock simply had to close above its 250-day moving average and within 5% of its 252-day high. Those instances are all listed below.

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It appears the overall tendency when a leading NDX stock gaps down a sizable amount from a high area is for the stock to rebound some between the open and the close. But volatility and variance is very high. Traders need to decide whether the upside edge and the potential reward are worth the risk when considering trades in FB on Thursday.

Note: Tests were run on Amibroker using Norgate data.

 

 

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Quantifiable Edges Big Time Swing System Posts Moderate Gain For 1st Half Of 2018

Posted by in Subscriber Features/Letter July 17, 2018

Despite a difficult trading environment in the 1st half of 2018, the Quantifiable Edges Big Time Swing System has managed to continue its winning ways utilizing SPY signals. I’ve updated the Quantifiable Edges Big Time Swing System overview page with results through 7/6/2018. The system only averages about 1 trade per month, so I generally only update it on a semi-annual basis. Through 7/6, there were only 4 trades triggered for SPY. Two of them closed positive and two down for a net gain of about 1.0% (including dividends, commissions of $0.01/share, and an assumed interest rate on cash of 0.1%). While that is well off the average pace for the system, it is nice to see it continue to make new highs even when it underperforms its norms. The QE Big Time Swing System has yet to post a losing year in SPY.

The system provides easy to follow mechanical rules, with no black box component. The standard parameters are not optimized, and have never been changed since the system’s release in 2009. There are only about 11 trades per year averaging 7 trading days per trade. To make it even easier, all entries and exits are either at the open or the close. And to be sure you have everything set up properly, traders may follow the private purchasers-only blog that tracks SPY signals and possible entry/exit levels.

For system developers looking for a system that they can use as a base to build their own system from, the Big Time Swing is an attractive option. It is all open-coded and comes complete with a substantial amount of background historical research. And since it is only in the market about ¼ of the time, it can easily be combined with other systems to provide greater efficiency of capital. Once you’re ready to try and improve the system yourself you can also refer to the system manual or the August 2010 purchaser-only webinar – both of which discuss numerous ideas for customization.

The system has proven its worth since its release over 8 1/2 years ago. Don’t wait another year to determine if the QE Big Time Swing System is appropriate for you. For more information and to see the updated overview sheet, click here.

If you’d like additional information about the system, or have questions, you may email BigTimeSwing @ Quantifiable Edges.com (no spaces).

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A look at SOMA changes influence on SPX since Quantitative Tightening began

Posted by in Fed Study, Quantitative Study July 16, 2018

The chart below is from this weekend’s QE subscriber letter. It is one I have updated frequently the last few months. It looks at compound performance of two opposing strategies. The blue line represents a strategy that is invested in the market during weeks that the Fed’s SOMA account value rises. During weeks where the SOMA declines, the blue line is sidelined (earning no interest). The red line takes the opposite approach. It is in the SPX during SOMA contraction weeks, and it is sidelined when the SOMA expands. (The SOMA is the Fed’s System Open Market Account that contains all of its bond holdings.) SOMA changes are released each Thursday, and look at a Thursday – Wednesday reporting week.

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This past week (ending July 11th) saw a mild increase in the SOMA, which appeared to provide just enough opportunity for the bulls to run. Expansion weeks have been positive on a very consistent basis (+16.4% total). Reduction weeks have been choppy and net losers (-4.9% total). The rally this past week again put the blue line at new highs. The last time the SOMA expanded and the blue line did not hit a new high was in November of 2017. The current week (through Wednesday the 18th), I am expecting to see further SOMA increases. But as we close out July and head into August, the Fed’s Quantitative Tightening (QT) program will kick in harder and we should see some sizable SOMA contractions. The expected tight liquidity could make it more difficult for the market to absorb any shocks or bad news. This may open the door for a bearish push, or at least some increased volatility.

For a more detailed discussion of Quantifiable Edges SOMA outlook, you may take a free 7-day trial, where you’ll be able to read this past weekend’s letter as well as next weekend’s.

To learn more about the Fed, its policies, the SOMA, and how it all influences the stock market, check out the free QE research paper, Fed-Based Quantifiable Edges for Stock Market Trading. (This is available with the trial also – no need to sign up for both. Or if you previously registered at Quantifiable Edges, just login, click on “Sub Info” and then look under “Active Resources” to download the paper.)

 

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What 3 Days Of Strong NASDAQ Breadth Suggests For Today

Posted by in Breadth, Quantitative Study July 10, 2018

Not only did we see gains for the 3rd day in a row on Monday, but the NASDAQ put in some strong breadth numbers. This triggered a study that looked at times Nasdaq advancers outnumbered decliners by more than 3:2 for 3 days in a row. It suggested such persistent lopsided breadth was about enough, and it was often followed by a down day. Updated results can be seen below.

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The numbers imply a downside edge. I also included the equity curve (which I normally only do in the subscriber letter).

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It’s definitely choppy, but it has moved from upper left to lower right for a long time. And I have shown this study for years, and it continues to make new lows. So I believe it is worth some consideration when establishing my bias for today.

 

 

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Is Friday’s Sharp Drop in VXO Meaningful?

Posted by in Quantitative Study, VIX July 9, 2018

The rally on Friday was accompanied by a sizable drop in the VIX (and even more so for the VXO, which is the old calculation for the VIX). This triggered some old studies for me in which I noted that big drops in the VXO have had much different connotations depending on whether SPX is in a long-term uptrend or downtrend (as defined by its proximity to the 200ma). I decided to review those studies, which require a 15% 1-day VXO drop, in this weekend’s subscriber letter.

First let’s consider what has followed when the large VXO drop has occurred during a long-term downtrend.

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We see here some bearish statistics over the 1-2 day period. There is rarely upside follow-through when fear dissipates that quickly during a downtrend.

But now let’s consider times like the present where SPX is in an uptrend.

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Here there is no hint of a short-term bearish inclination. In fact the setup has shown slight gains for each of the time periods measured. I don’t think the numbers are strong enough to consider this a bullish setup, but it certainly is not bearish. When considering short-term implications of strong moves or extreme indicator readings, it often helps to also view things with a long-term perspective.

 

 

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