A Look At Zweig Thrust Signals

Posted by in Breadth, Quantitative Study November 5, 2023

The strong breadth we have seen recently has caused the 10-day exponential moving average of the Up Issues % to rise up to 63.6%. A move through 61.5% after being below 40% within the last 10trading days is considered a Zweig Breadth Thrust trigger. This is a signal created by Martin Zweig. I last discussed it in the 1/8/19 blog. In that post I also showed charts for past signals. Over the long haul Zweig Breadth Thrusts have been rare but powerful.   Below is a stats table showing results of all signals since 1957 and summarizing them. (Note I used Norgate Data this time, rather than Tradestation data. That was so I could look back further in time. Data providers data often varies slightly, so we see a 2011 instance below where we did not see that with the Tradestation data a few years back.)

Zweig Breadth signals

Over the short, intermediate, and long-term there have been strong gains on a consistent basis.  The AVG run-up over the next 20 days has been 6.79%. This is double the MAX drawdown, and over triple the average drawdown. Average gains over the next 10 days are 2.4%, 21-days average 5.7%, and the average gain over the next year has been 24.3%. Those are impressive moves. So yes, the market is overbought. But this is a case where the move has been so strong and so broad that strength is likely to beget more strength.

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Is $SPX Selloff Near An End?

Posted by in Quantitative Study October 2, 2023

This past week was the 4th week in a row that the SPX declined. It is quite unusual to see SPX close down for 4 weeks in a row, but still remain above its 40-week moving average. Below is a look at other times since 1975 that this action has occurred.

SPX down 4 weeks in a row but above 40-week average

These results are suggestive of an upside edge over the next several weeks. Below I have listed all 15 non-overlapping instances using a 10-week exit strategy.

List of 10-week returns following 4 weeks down but above the 40-week average

The 2011 instance did not work out at all. Most everything else looks encouraging. Based on this narrow look, it appears we are reaching a point where an SPX rally might be expected in the coming weeks.

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NASDAQ no longer leading the SPX – what this means for the market:

Posted by in Quantitative Study August 13, 2023

One particularly notable indicator change that occurred at the close on Friday is that out NASDAQ/SPX Relative Leadership indicator flipped so that it is now showing the SPX as leading and the NASDAQ as lagging. This can be seen in the chart below.

NASDAQ/SPX Relative Strength shows NASDAQ faltering now

Whenever the solid (green/red) line is above the blue dashed line that means the NASDAQ is leading. When it drops below (and turns red as it is about to do), that means the NASDAQ is lagging the SPX. The market has performed substantially better over the years when the NASDAQ has been leading. You can see in the chart above that the NASDAQ has been the leader for most of 2023. SPX was the leader for most of 2022 as the market struggled overall.

I wrote about this indicator on the blog way back in 2009. I also discussed it in an article for ProActive Advisor magazine last year. Most significantly, it is one of the indicators included in the Quantifiable Edges Market Timing Course. In the course I show how it can be combined with some other indicators to create some simple but compelling market models.

This could be a brief headfake like we saw in April. But it is certainly notable that NASDAQ is no longer the stronger of the two indices. And that is generally an unfavorable condition for as long as it persists.

You may find more information on the Quantifiable Edges Market Timing Course here.

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New! Quantifiable Edges Market Timing Course 2023 Expanded Edition

Posted by in Subscriber Features/Letter July 25, 2023

Quantifiable Edges Market Timing Course was originally released in 2014. Since then, the Combination Models presented have all soundly outperformed the S&P 500 (as shown in the table below).

Quantifiable Edges just released its 2nd edition of the course, with updated stats for the 4 original indicators and 3 original combo models. But we are also expanding the course to include a new Fed Liquidity indicator and new combination models to incorporate this new, powerful indicator.

The table below shows performance of the 3 original combination models since the release of the Quantifiable Edges Market Timing Course over 9 years ago.

All 3 models have achieved higher returns with less drawdown and reduced market exposure in live action over the last 9+ years!

Combination #2 is the most active and aggressive version. It has been in the market about 79% of the time since it was 1st published. Over that time, there have only been 48 trades (about 5 per year), and it generated a compound annual return that outpaced the S&P 500 by 5.55% per year! Below is a profit curve of the model vs the S&P 500.

The chart was created using RealTest software, and RealTest users can easily reproduce it with the add-on code.

Now with the updated and expanded 2nd edition of the course, Quantifiable Edges introduces its Fed Liquidity indicator. The indicator is grounded in Fed-based work that Quantifiable Edges has produced since 2012. And as you’ll see in the analysis, the Fed Liquidity indicator would have acted as a better predictor of SPX movement over the last 20+ years than any of our original 4 indicators.

We then share some ideas and sample models showing how incorporating the Fed Liquidity indicator along with the original models would have produced even more impressive results than the original Combo Models.

Also covered in the course are ideas for execution, potential improvement on the models, and how they could be incorporated into someone’s portfolio.

The indicators and models are all fully open.

Excel, Tradestation, and Ninja-Trader code is available for free for the original 4 indicators.

RealTest and Amibroker code is available as an add-on. These allow you to reproduce the results of the Combination Models, tweak them however you please, and explore the indicators and ideas further!

Additionally the original course is still available for students to view and refer to so that they can easily see what was taught 9 years ago, and how it has held up over time!

Anyone can build a nice-looking backtest. Live performance is what matters.  The Quantifiable Edges Market Timing Course has delivered since it was released in 2014. So sign up today, and gain a quantifiable edge over most investors! (Or sign up for an annual Gold or annual Silver subscription and get the 2nd edition of the Market Timing Course for free!)

Click here to purchase!

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Did COVID ruin Opex week?

Posted by in Quantitative Study, seasonality June 12, 2023

This week is options expiration week. And we have known for a long time that opex is often a bullish week for the market. Interestingly, that seasonal tendency has not seemed to hold true since the COVID crash in 2020. Below is a look at performance of all opex weeks since 1984.

Opex week performance has floundered since 2020

There has been a clear shift in the curve over the last few years. The top of this curve came in January of 2020. February of 2020 saw a decline of 1.25%, and then March had the worst opex week ever, with a 14.6% drop. But unlike other periods, opex week has never recovered its bullish tendency. The chart below looks at performance since April of 2020. I started the chart at that point simply to see how it has done since the market bottomed in 2020. So this does NOT include the worst week of March 2020.

There has been a little bit of a bump up over the last few instances, but the stats and curve still look pretty awful. I am not yet convinced that downside tendency of the last few years is a new seasonal trend. But I certainly see enough evidence here that I am no longer looking at opex weeks and automatically thinking they are bullish.

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Russell Death Cross Implications for SPX

Posted by in Quantitative Study April 23, 2023

I have seen some chat about the Russell “Death Cross” that occurred on Friday and the potential bearish implications for the market.  A “Death Cross” is a catchy (though not terribly accurate) term for when the 50-day moving average of a security cross below its 200-day moving average.  It is sometimes promoted as a warning of a potential bear market.  Of course all bear markets will see this happen at some point, because a bear market is an extended decline.  But the real question when considering the implications of the Death Cross are whether it serves any value in predicting a more substantial decline.  A few years ago I did an examination of past Russell Death Crosses, and what they meant for the S&P 500. I have updated that study from the 11/14/18 blog below.

Both of my data sources show Russell data back to late 1987.  And since I need 200 days to calculate a 200-day moving average, the earliest the study could look back to was 1988.

Here is the list of all Russell Death Crosses and how the SPX performed from the time of the initial cross until the Russell Death Cross was no longer in effect (meaning the 50-day moving average closed back above the 200-day moving average).

List of Russell Death Crosses

Twenty-one winners.  Only four losers.  So 84% of the “predictions” were wrong.  The biggest winner of the group came in 2020. The most recent instance, from last year, saw a substantial loss. Here is a look at the summary stats and a profit curve for this setup.

Russell Death cross profit curve

I am having a hard time seeing the Russell 2000 Death Cross as a bearish indication.  You would have a much easier time convincing me this is a bullish indication for the intermediate-term.  (I don’t really view it as bullish though.  Drawdowns were generally sizable, even for a good portion of the “winners”.)

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VIX-Based Trading Edges (Presentation)

Posted by in Interviews & Mentions, VIX April 20, 2023

Last week I did a presentation on VIX-based Trading Edges to Ali Pashaei’s group of traders. Ali has been kind enough to post a recording of the presentation and discussion to his website in an area that is free for the public. A link is below:

VIX-based Trading Edges by Rob Hanna of Quantifiable Edges (optionsinpractice.com)

You may recall Ali from an interview I did with him about a year ago. He runs the Options In Practice website. That interview can still be found here, and contains lots of interesting ideas. So if you have some time later today or this weekend, check out my presentation to Ali’s group from last week. And if you missed it a while back, watch or listen to my old interview of Ali as well!

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When the employment report has been released on Good Friday…

Posted by in Quantitative Study, seasonality April 6, 2023

While the market is closed on Friday for Good Friday, the BLS will be releasing the employment report.  This is only the 13th time since 1980 that this has happened.  Below is a list of all previous instances along with their performance on Monday when the market was then back open.

Jobs report on Good Friday -> Monday performance.

Six instances closed down and six closed up on Monday, so on the surface this study does not seem to provide useful information.  But what is notable to me is that 8 of the 12 instances saw the market close either up or down by more than 0.75%.  (Those are all circled in blue.)  That shows the Monday reaction has often been volatile, and suggests risk may be elevated a bit because of this.

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Will Tomorrow Be Another Bullish Holy Thursday?

Posted by in Quantitative Study, seasonality April 5, 2023

Stock market performance leading up to and around many holidays has often shown an edge. Holy Thursday is one day that has done quite well. I have shown Holy Thursday stats several times in the past. The chart and statistics below are all updated through last year.

Holy Thursday stats and profit curve

Despite closing lower last year, the stats and the curve are impressive, and suggest a bullish seasonal tendency. Traders may want to keep this in mind when setting their bias for Thursday.

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Action Mon-Tues Can Skew $FED Day Odds On Wednesday

Posted by in Fed Study, Quantitative Study March 20, 2023

While the Fed decision will certainly play a part in how the market performs on Wednesday, another factor that has historically played into Fed Day odds is simply how the market performed leading up to that decision. A rally into a decision has often lead to disappointment (or “sell the news”). A selloff into a decision often indicated the market is preparing for the worst, and you’d see a relief rally. This is demonstrated in the studies below. They show SPX Fed Day performance when SPX closed at a 5-day high vs a 5-day low the day before. With SPX now in the middle of its 3-day range, we could easily end up at either of these extremes on Tuesday.

Fed Days after 5-day high
$SPX $FED Day performance after 5-day low

Clearly a 5-day low sets up for better Fed Day odds. It will be interesting to see how the market acts over the next two days heading into the Fed decision.

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When $SPX is making new lows and the CBI is zero

Posted by in CBI, Quantitative Study March 10, 2023

Concerning about the current selloff is the fact that the Quantifiable Edges Capitualtive Breadth Indicator (CBI) remains at zero. Most subscribers understand that spikes in the CBI can often be a strong indication that a bounce is near. But a low CBI can also be a useful indication. The study below looks at other times SPX closed at a 20-day low and below the 200ma and the CBI posted a zero reading.

SPX 20-low CBI = 0. More selling

The lack of capitualtive selling seems to suggest there could be more selling to come before a bounce occurs. Below is a look at a profit curve assuming a 5-day holding period.

5-day profit curve shows consistent losses

That is a strong & steady decline. To see how this contrasts with times the CBI closed above zero, I ran a couple of other tests. This next one requires readings of between 1-7.

spx new lows with mild cbi small bullish edge

The red has turned to green in the Average Trade results. Instead of a downside edge, it appears there is a moderate upside edge. Of course the largest edges tend to occur when the CBI is giving high readings. The last study below looks at the same setup, but with a CBI over 7.

spx low with high CBI is a strong edge

These results are strongly bullish. But this is not the current situation. The CBI of zero has us facing the first CBI study above, and that suggests more selling in the next week.

Of course the employment report that will come out before the open could trigger a large reaction either way. And we will also be faced with CPI numbers coming Tuesday. In other words, there is strong potential for large swings in either direction. This market has plenty of risk and I do not see a compelling indication that a bounce is highly probable at this point.

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A CBI of 8 or 9 and a 20-day low above the 200ma

Posted by in CBI, Quantitative Study March 2, 2023

Wednesday on Twitter I noted that the Quantifiable Edges Capitulative Breadth Indicator (CBI) has begun to perk up. It closed at 8 on Wednesday. I have historically viewed readings of 10+ as bullish. But even getting near that will often generate an upside edge. The study below is from last night’s subscriber letter. It looks at other times SPX closed at a 20-day low & above the 200ma, and the CBI read 8 or 9.

CBI 8-9 with SPX at new low > 200ma

The stats appear solidly bullish. Below is a look at a profit curve that assumes a 4-day holding period.

Profit curve of CBI 8-9 with SPX at new low > 200ma

That is a fairly straight shot from lower left to upper right. Falling a little short of a CBI reading of 10+ still seems to have led to very positive performance under similar circumstances. Traders may want to keep this in mind when setting their market bias.

I will also note that another down day on Thursday could see the CBI reach 10. That is not a magical level, but it has been a good indication over the years that a bounce is likely within a few days.

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SPX Golden Crosses Since 1928

Posted by in Quantitative Study February 2, 2023

SPX will post a Golden Cross on Thursday afternoon. A Golden Cross occurs when the 50ma crosses over the 200ma. Having the 50ma above the 200ma is commonly considered a bullish market condition – and generally it is. In the 7/9/20 blog post I looked at SPX Golden Crosses dating all the way back to 12/31/1928. I have updated that research tonight with Amibroker Software and Norgate Data. Below is a list of all Golden Crosses since then. (Note that prior to 1957, S&P 90 data was used. The S&P 90 is considered the predecessor to the S&P 500.)

Since the 1961 trigger, the Golden Cross has generally served as a fairly good timing device to sidestep large portions of bear markets.  Prior to that it was not nearly as effective. This can be seen in the drawdown chart below.  (Note: Overnight Fed Funds rate was used to calculate nightly interest starting in July 1954, which is as far back as my data goes. Prior to that, no interest rate was assumed when out of the market.)

Golden Cross drawdowns

While drawdowns have been mostly fairly moderate since the mid-50s, prior to that there were some very large drawdowns to endure. The 2020 drawdown was the biggest since the 40s.  Despite some fairly sizable drawdowns, the Golden Cross would have beaten “Buy and Hold” handily. Over the time period measured, the SPX had a compound annual growth rate (CAGR) of 5.57%. Simply incorporating a Golden Cross filter would have raised the CAGR to 7.25%. It is a bullish long-term trend indication.  But it is not a bulletproof long signal. 

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An Unprecedented Breadth Trifecta has Triggered

Posted by in Breadth, Quantitative Study January 16, 2023

On Thursday afternoon I witnessed 3 different breadth thrust signals I watch all trigger on the same day. The signals, with link to learn more about them are:

  1. Walter Deemer’s Breakaway Momentum (BAM) signal
  2. Wayne Whaley’s Advance Decline Thrust (5) from his paper “Planes, Trains, and Automobiles: A Study of Various Market Thrust Measures”
  3. Quantifiable Edges “Triple 70” thrust signal.

Thursday was the 1st time ever that a Triple 70, a Deemer Breakaway Momentum (BAM), and a Whaley ADT5 thrust all happened on the same day. There have been 7 instances where 2 of the 3 triggered on the same day. They can all be found in the table below.

multiple breadth thrust signals

The signals on their own all have impressive track records, which you can see if you click through to the links. When 2 combine, it has been almost perfect 1-12 months out. All the recent breadth certainly seems to be a positive.

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Webinar – Using Elevated Interest Rates and Volatility to your Benefit

Posted by in Quantitative Study January 12, 2023

I am pleased to announce I intend to kick off 2023 with a new webinar for followers, “Using Elevated Interest Rates and Volatility for your Benefit”.
 
On Friday 1/13 at Noon EST, and then again Tuesday the 17th at 4:30pm I will be hosting a special free webinar where I will discuss an approach to utilizing current elevated interest rates in conjunction with VIX option models as a compelling strategy. Details can be found below.

Date and time: 1/13/23 at Noon (Eastern Time) & again 1/17/2023 – 4:30pm (Eastern Time)

If you would like a link to the recording of the webinar, simply register here. Recordings will be sent out Tuesday night.

Duration: 30-40 minutes + Q&A

Description: The webinar will cover the following topics:

  • The Lure of Treasuries
  • Why Treasuries & Certain VIX Options Strategies Complement Each Other so Well
  • A Couple Examples of Models Rob uses at Capital Advisors 360
  • Open Q&A

Video and Screen Sharing:

Online meeting ID: robh60

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

Alternate Dial-In Info:

Dial-in number: (605) 313-5497(U.S.) – (Note: not toll free. Free option is using online meeting link above)

Access Code: 181851#

International Dial-in Numbers: View List

The webinar will be recorded and all who sign up will receive a link to the recording.

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