Tuesday’s have a well-earned reputation for being days where bounces tend to begin. The study below is from last night’s letter. It was also shown in the Quantifinder yesterday afternoon. It examined other times that the SPX closed at a 20-day low on a Monday. Results have been updated.

Stats here appear strongly bullish. It is also worth noting that since 2013 there have been 9 winning trades in a row (when looking out 4 days). Traders may want to keep this in mind over the next few days.

Want research like this delivered directly to your inbox on a timely basis? Sign up for the Quantifiable Edges Email List.

Yesterday I showed a VIX-related study that suggested it was so stretched to the upside that the market was likely to get a quick bounce. And we certainly got one on Monday. The VIX is a measure of options pricing and is often referred to as a “fear index”. It saw a 13% drop on Monday. Meanwhile, the VXO, which is the old calculation of the VIX declined nearly 23%. Such big declines often suggest short-term over-optimism on the part of traders and are followed by a dip the next day. This can be seen in the study below.

Numbers here suggest a downside edge for Tuesday. I’ll note that there are some other studies I am seeing that show short-term bullish inclinations. But the way the VIX and VXO are jumping around, we certainly seem to have entered an emotional, reactive market environment. Such environments can be prone to whippy action. Traders should anticipate a market that is much different than the quiet, tight ranges we experienced from mid-July through early September.

Want research like this delivered directly to your inbox on a timely basis? Sign up for the Quantifiable Edges Email List.

The study below simply examines action similar to the last 2 days with regards to how SPY gapped and finished.

The numbers here all look solidly bullish. Traders may want to keep this in mind for today and the future.
Want research like this delivered directly to your inbox on a timely basis? Sign up for the Quantifiable Edges Email List.

Remarkable about Friday’s 50-day high close is that it came just 8 trading days after SPX closed at a 50-day low. That’s quite rare to see. The study below is from this weekend’s Quantifiable Edges Subscriber Letter. It looks at all the instances since 1950 of a move from a 50-day closing low to a 50-day closing high that have occurred within 2 weeks.

There have only been 7 occurrences but the stats are overwhelmingly bullish over the next month. The profit maxes out on day 17 in the table above. To getting a better feel for the instances I have listed them all below along with 17-day stats.

While 7 instances is a bit low, the results are unanimous and the stats above are incredibly lopsided. So it seems this study may be worth some consideration. The average run-up of the 7 instances is over 5x the size of the average drawdown, and every instance saw a run-up substantially larger than its drawdown. That’s impressive.

Want research like this delivered directly to your inbox on a timely basis? Sign up for the Quantifiable Edges Email List.

As I write this in the middle of the night, the S&P 500 futures are down between 4% – 5%. A 4% gap down for the SPY is very rare. Below is a list of all other times it has happened since its inception in 1993.

It does not appear as though panic selling at the open would be wise. There seems to be a strong upside edge for this one day. Of course the sample size is low and anything could happen in such a highly charged environment.  But this study certainly suggests an upside edge should a 4% gap down actually materialize.

Want research like this delivered directly to your inbox on a timely basis? Sign up for the Quantifiable Edges Email List.

Monday marked the 6th day in a row that SPX reversed direction on a closing basis. Friday’s bounce off a 20-day low on Thursday did not get any follow through. But bulls should not be too discouraged by this. The study below is from the Quantifinder. It considers similar situations in the past.

The stats certainly appear bullish and the edge seems to occur both right off the bat and after a couple of weeks. Traders may want to keep this in mind over the next few days.

Want research like this delivered directly to your inbox on a timely basis? Sign up for the Quantifiable Edges Email List.