CBI Returning To Neutral & What That Suggests

Posted by in CBI, Quantitative Study March 29, 2018

The Quantifiable Edges Capitulative Breadth Indicator (CBI) has been in play lately, but todays Holy Thursday rally is taking it down from 7 yesterday to likely 0 at the close this afternoon.

 

After alerting followers of the move to zero, I received a few questions asking about SPX performance following such drops in the CBI. I looked at it a number of ways. Results are pretty much what I expected, but some of you might find them disappointing. Below is an example of one test I ran looking for an edge.

2018-03-29

I don’t find the numbers here to be compelling for either the bulls or the bears. This is not terribly surprising, since 0 is considered “neutral”. This does not mean that there is no edge to be found in the market at the moment. It does mean that traders will need to use tools other than the CBI to identify an edge. Capitulative selling that was evident a few days ago has been exhausted. We’ll need to wait a while until the CBI comes back into focus.  In the meantime, I’m sure we will find hints elsewhere.

 

To learn more about the CBI, check out the CBI Research Paper.

 

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Holy Bullish Thursday!!

Posted by in Quantitative Study, seasonality March 28, 2018

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 through last year.

2018-03-28

Despite the last 2 years losing some ground, the stats remain impressive, and so does the overall curve.  Perhaps the most impressive stat to me is that the up days have been 2.3x the size of the down days.  This suggests people will often go into the long Easter weekend with enthusiasm. It will be interesting to see if Holy Thursday bullishness starts to reassert itself in 2018.

You can see many more seasonal studies like this by clicking on the “Seasonality” category on the blog. Another great source of seasonal ideas is @JayKaeppel‘s book, “Seasonal Stock Market Trends”.
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A CBI of 9 & SPX at a 20-day Low

Posted by in CBI, Quantitative Study March 26, 2018

Over the weekend, I decided to run some new studies based on the Quantifiable Edges Capitulative Breadth Indicator (CBI). As I tweeted out near the close, the CBI reached 9 on Friday. Historically, I have viewed 10+ as the level that really gets me excited about a potential bounce. I decided to examine market performance other times the SPX closed at a 20-day low and the CBI reached a level of X of higher. In the study below I hold the market position until the CBI returns to 3 or lower.

2018-03-25

As you can see, results when it hits anywhere 7 or higher are fairly reliable. I have highlighted 9 above since that is the current setup. I also generated a profit curve using 9+ as the entry trigger.

2018-03-26

The curve certainly seems to support the idea of a bullish edge. I noted the last loser on the chart, which occurred in June of 2011. While historical odds would look a bit better with a slightly higher CBI, the current reading of 9 has been enough that a bounce was often seen. We may already be seeing that bounce begin this morning. For those that would like to learn more about the CBI, I recently wrote a detailed research paper about it. Additionally, there are a large number of studies about the CBI that can be found on the blog.

 

 

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When NDX Has Closed At A Multi-Week Low On A Fed Day

Posted by in Fed Study, Quantitative Study March 22, 2018

As far as Fed Days go, Wednesday was a disappointment. Not only did it fail to rally, but it also left SPX and NDX at 10-day lows. With Fed Days typically bullish, finishing at a 10-day low is quite unusual. The results table below is part of a larger examination I did in last night’s Subscriber Letter (click here for free trial). It looks at prior Fed Day instances of 10-day low closes for NDX when it was in a long-term uptrend.

2018-03-22

The numbers are quite impressive, and point to a move higher over the next several days. The suggestion is that the Fed Day decline is often an overreaction, and that the market is likely to bounce. NDX looks like it is going to get off to a rough start on Thursday, so it is going to take a momentum shift if we are going to see historical odds play out this time. But seeing some additional selling is not unusual. Every one of the 16 instances saw a pullback of at least 0.6% from the entry price at some point over the next 7 days. I’ll also note that every instance saw a run-up of at least 0.8% over the next 7 days. And the lone loser after 7 days actually experienced a run-up of over 3% before turning down. This study, though limited in its scope, suggests the NDX is setting up for a bounce over the next several days.

 

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Fed Day Performance In Rising vs Falling Rate Environments

Posted by in Fed Study, Quantitative Study March 20, 2018

The Fed holds policy meetings 8 times per year. Many times since starting Quantifiable Edges in 2008, I have discussed the (primarily bullish) edge that exists on the final day of these meetings when the Fed releases its statement and announces any new policy changes. One question I often get about Fed Days is whether it matters if we are in a rising-rate environment, or a declining-rate environment? This is something I explored in the Quantifiable Edges Guide to Fed Days several years ago. And when it comes to actual Fed-Announcement Day performance, I found the results to be somewhat surprising. The 2 studies below are updated from the book. They break down Fed Day performance by environment.

2018-03-20-1

2018-03-20

It does not seem to matter one bit whether the Fed has been accommodative or not. Fed Days have shown a bullish bias either way. You’ll note the “% Profitable” and “Average Trade” numbers above are almost identical!

A lot of different factors DO matter when examining Fed Day performance. And you can learn about many of them on the blog or in the book. Interestingly, one factor that does NOT seem to matter, is whether the Fed is generally dovish or hawkish.

Have a happy Fed Day tomorrow!

 

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When Bullish Opex Weeks Fail To Play Out

Posted by in Quantitative Study, seasonality March 18, 2018

I discussed last weekend that monthly option expiration (opex) week is typically a bullish week, especially during the months of March, April, October, and December. Obviously, the bullish tendency did not play out this past week. So does this mean the bullish tendency may be delayed a week? Or is the market not doing what it is “supposed” to a sign that it is likely to continue lower? Or neither? I constructed some studies to find out. This 1st one looks at instances like we are currently experiencing where typically bullish opex weeks fail to deliver.

2018-03-18

The numbers here all point towards an upside edge. The edge improves as we look out from 1 to 5 days. But how does this differ from performance following instances that saw the bullish opex week tendency play out? For comparison, I flipped that requirement and have shared those results below.

2018-03-18-2

So without the opex-week selloff, the following week has not shown a bullish tendency. Based on all this, it appears the bullish tendency has typically arrived late, and it portends a bounce this upcoming week.

Hat-tip to @McClellanOsc for the idea to test!

 

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Introducing The Quantifiable Edges CBI Research Paper!

Posted by in CBI, Quantitative Study March 11, 2018

When volatility spikes and the market goes into a freefall, anticipating a reversal can be very difficult, but also very rewarding. My favorite tool for capturing potentially monster reversals under such stressful market conditions is the Quantifiable Edges Capitulative Breadth Indicator (CBI).

 

Now, after sharing studies for 10+ years about the CBI, I have put together a detailed research paper on it! The paper includes updated and new studies, as well as comprehensive stats and charts of every significant CBI spike since 1995.

 

The research paper is available for free download by all registered users at Quantifiable Edges. (Anyone that has ever bought anything or signed up for a free trial or registered for our free downloads. In other words, anyone with a username and login.) If you do NOT qualify, but would like to get a copy of the CBI research paper, you may sign up for a Free Trial, or register for our Free Downloads.

 

If you already have a username and login at Quantifiable Edges, just login and follow the simple instructions below to download the Quantifiable Edges CBI Research Paper. I hope you find it to be a useful resource as we monitor CBI readings and market action going forward!

2018-03-11

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Today’s Employment-Sparked NASDAQ Rally Appears To Be A Short-Term Bullish Indication

Posted by in Employment Days, Quantitative Study March 9, 2018

The employment report has helped to spark a big rally today, and the NASDAQ is hitting new all-time highs. I looked back at other instances where the NASDAQ spiked higher and closed at a new high on the day of an employment report. The results I saw were compelling. Here are the list of instances along with their 5-day returns:

2018-03-10

With the only loser closing down 0.06%, the stats are completely lopsided for the bulls. Employment-sparked momentum leading to new highs like we are seeing today has seen positive short-term follow through in the past. This certainly appears worth keeping in mind as traders ready for next week.

Hat-tip to @McClellanOsc for the idea to test!

 

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Options Expiration Week Performance By Month – 2018 Update

Posted by in Quantitative Study, seasonality March 9, 2018

Next week is monthly options expiration week. I’ve noted several times over the years that Op-ex week in general is pretty bullish. March, April, October, and December it has been especially so. S&P 500 options began trading in mid-1983. The table below is one I have showed in March each of the last several years. It goes back to 1984 and shows op-ex week performance broken down by month. All statistics are updated.

2018-03-09

While December has been the most reliable, March op-ex week has seen the most in total gains. Traders may want to keep this in mind for next week, and perhaps in future months as well.

 

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A look at the February selloff and the Quantifiable Edges CBI

Posted by in CBI, Quantitative Study March 4, 2018

As the early February volatility explosion unfolded, it was difficult to anticipate when the selling would reach a level that the market would find a bottom (at least temporarily). The selloff exceeded historical levels based on % changes in range and volatility increases. One indicator that once again demonstrated its worth was the Quantifiable Edges Capitualtive Breadth Indicator (CBI). The CBI quickly spiked to 25 and then continued up as high as 31 in the ensuing days. I noted the initial spike here on the blog, and tweeted (@QuantEdges) updates over the following days and weeks.

 

One CBI-based strategy I have shown in the past involves going long the S&P 500 when the CBI spikes to 10 or higher, and then exiting the position on a return to a “neutral” CBI level of 3 or lower. The chart below shows how this approach would have worked out during the February market.

2018-03-04-1

In this case, the selling was not over, and another brief leg down would have had to be endured to take advantage of the strategy. But those that utilized the edge and showed the fortitude to hold until the CBI again turned neutral were again rewarded.

 

Below are updated hypothetical stats for the strategy.  ($0 commissions assumed.)

2018-03-04-2

Numbers here are quite impressive and suggest a strong bullish edge. Lastly, the profit curve:

2018-03-04-3

The strong, steady upslope serves as some confirmation of the bullish edge suggested by the numbers.

 

Even before starting Quantifiable Edges in 2008, the CBI was one of my favorite indicators for identifying selling capitulation that is highly likely to be followed by short to intermediate-term market rallies. And it has always been a staple at Quantifiable Edges. In fact, the 3rd post I ever did was about the CBI.

 

Later this week I will be releasing the most detailed analysis I have ever done of the CBI. I will show charts of market action during and after every spike since 1995. I will share a detailed spreadsheet with breakdown and stats of all such CBI spikes. And I will show many additional studies as well as strategies traders can incorporate into their own methods. And it will all be free of charge. I’d encourage traders to keep an eye out for it.

 

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SPX Performance After Three 1% Down Days

Posted by in Quantitative Study March 2, 2018

Last night I looked at 3-day pullbacks a number of ways in relation to current market conditions. I thought blog readers might find the following interesting.

 

I noted that SPX closed lower by greater than 1% for the 3rd day in a row on Thursday. In the past, that has often been followed by gains the next day. But times where is wasn’t…well, take a look at the chart below.

2018-03-02-1

Good chance we bounce in the next few days. Some chance things get a whole lot worse.

 

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A Two-Day SPY Pattern Suggesting A Bullish Edge For Wednesday

Posted by in Quantitative Study February 28, 2018

SPY gapped up and closed lower Tuesday after leaving an unfilled up gap on Monday. This triggered a simple study that I have examined a number of times over the years in the subscriber letter. The study can be found below.

2018-02-28

The numbers here all look solidly bullish, suggesting a potential 1-day upside edge.  Traders may want to keep this in mind today.

Of course if you read the blog regularly, you may realize this is in conflict with a study I showed over the weekend that suggested possible bearish implications through Wednesday.  That’s ok.  Not all evidence will always point in the same direction.  My favorite tool to help establish my bias when examining conflicting evidence is the Aggregator.  In any case, it will be interesting to see how Wednesday plays out, and how that sets up the next few days.

 

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The Negative Impact Of Friday’s Low Volume

Posted by in Quantitative Study, volume February 25, 2018

I mentioned in a Tweet on Friday that the low volume on Friday’s rally was a bit concerning. The study below is one I featured in the subscriber letter this weekend. It examined other times substantial rallies occurred during uptrends on very light volume.

2018-02-25

Stats here suggest a downside edge. Perhaps not a huge edge, but in my view one that appears strong enough to warrant some consideration when establishing my short-term bias. So traders may want to keep this in mind as we begin a new week. I will also note that I ran the same test, but switched the volume requirement to “NOT the lightest in 20 days”. Of course there were many more instances. With volume not coming in extremely low, the average trade flipped to moderately positive across the board. This suggests the low volume is a factor.

 

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Sunday Marks the Quantifiable Edges Subscriber Letter’s 10th Anniversary!

Posted by in Subscriber Features/Letter February 17, 2018

Sunday Feb 18th marks the 10th anniversary of the Quantifiable Edges Subscriber Letter.  I can hardly believe I have been writing it for 10 years, but it is true.  A few highlights and anecdotes from the last 10 years…

 

·         When the letter began, there was not even a website – just a blogspot blog and a Paypal button.

·         My 1st subscriber was Mr. Norwood.  I remember distinctly, because my wife grew up in a town called Norwood and I thought perhaps that was a good sign.  It was, and Mr. Norwood is still a subscriber today!

·         I’ve been honored to be able to speak at several conferences, contribute to books, and be interviewed by magazines.  But my favorite interview was with Ben Powers for Your Trading Edge magazine.  What made that one special was that they put my name on the cover in big bold letters.  My daughter was 6 years old at the time, and after she saw her dad’s name on a magazine cover, she told several teachers and camp counselors that I was famous.  (Despite my fame, in 10 years I have yet to ever have someone stop me out in public and ask if I am Rob Hanna of Quantifiable Edges.)

·         I have made some good friends through Quantifiable Edges – some who I ended up doing work with and spending lots of time with, and others that I still have never met in person!  One friend I spoke with for 8 years before meeting.  Then on a family trip a couple of summers ago I finally got the pleasure.  Jeff took me all over Orcas Island, and we went out on his boat, and my family and I got to see whales in the wild for the 1st time!  It was the thrill of the entire summer!

·         Another friend I have made along the way is Tom McClellan.  Tom’s father Sherman (along  with Tom’s mother) created the McClellan Oscillator.  I mention them here because several years ago I spoke at an event in California.  (I live in Massachusetts.)  Sherman lives in California.  And when Tom heard I was going to speak at this particular conference, he told his dad he should go see me.  So I knew Sherman was coming to see my speech, and I was a bit nervous to meet him and have to speak in front of him and a big crowd.  The function room where I was speaking had about 250 chairs set up.  Sherman was one of the 1st people to arrive, and he came up and introduced himself and we spoke briefly before I had to talk.  My talk was about Fed Days, and I guess I chose a topic that was too narrow for many people, because of those 250 chairs, 238 of them went unused!  I flew all the way across the country to speak in front of 12 people!  And Sherman McClellan, whose work I greatly admired, and who I had hoped to impress was one of those 12.  I was mortified.  He couldn’t have been nicer.  But I was still mortified.

 

So thanks to Quantifiable Edges I have had some wonderful experiences, and some trying ones.   I’ve met many terrific people.  I have also traded through a lot of ups and downs – both professional and personal.  Many of my market calls and trade ideas have turned out very well, and a few have not.  But when it comes to QE, perhaps the stat I am most proud of is this one:  in 10 years there has never been an NYSE opening bell that was not preceded by a Quantifiable Edges Subscriber Letter.  Through ups and downs, deaths, surgeries, illnesses, vacations and more, I have managed to get a letter out every single night for the last 10 years.  (I didn’t always WANT to write it, but I always have.)  And at this point I am as energized as I have ever been to continue writing.  But I will say this…some time in the next 10 years I intend to take a day off…maybe even a few days off.  Not yet, though.  Sunday will mark the 10th anniversary, and I’ll once again be writing the letter, looking to find Quantifiable Edges that will help me and my subscribers.

 

Thanks to all the readers and subscribers who have supported the Quantifiable Edges Subscriber Letter over the years.  And if you don’t have a subscription yet, then there is no time like the present.  Don’t wait another 10 years before trying it!

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Follow Through Days That Occur With Moderate Breadth & Moderate Volume Have Struggled Historically

Posted by in IBD Follow Through Day, Quantitative Study February 15, 2018

One notable bit of evidence that emerged on Wednesday was the fact that it qualified as an IBD Follow Through Day (FTD). I have done a lot of research on FTDs over the years. Much of that research can be found on the blog. Here is a link.

2018-02-15

The failure rate here is substantial no matter how you look at it. A short-term downside edge is suggested which largely plays out in the 1st 2 days. Every instance closed below the entry price over the next few days. And these FTDs have demonstrated a paltry 20% success rate. All these stats are impressive and point to a downside inclination over the next few days.

(Definitions for “successful” rallies as well as FTD determination criteria can be found in this post from 2008.)
 

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