Strong Bounces From Intermediate-Term Lows

Posted by in Quantitative Study August 11, 2014

I’ve been anticipating a bounce for a few days now, and this one seemed a little slow to arrive. But Friday put in a strong move, and we saw SPX go from closing at a 20-day low on Thursday to closing at a 4-day high on Friday. I decided to look at other times in which the market put in a strong thrust off a 20-day low. Here are the results.

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Day 1 is a bit iffy, but after that there appears to be a strong and consistent edge over the next 4 weeks. In the subscriber letter I looked at this study in a bit more detail. One thing I’ll note here is that without the 4-day high, up closes from a 20-day low still have a generally positive outlook. But the Avg Trade under those circumstances is about half what you see above for many of the time periods shown. Friday’s strong move up appears to be a positive.

 

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What Friday’s SPY Gap & Volume Action May Indicate

Posted by in Quantitative Study July 28, 2014

Not only did SPY leave an unfilled gap down on Friday, but it did so on relatively high volume. The study below, from the 1/13/10 blog, triggered. I took a new look and updated the stats.

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Implications here appear solidly bullish. We could see a bounce this week. Of course the Fed and other factors will also play in.

 

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What Thursday’s Solid VIX Rise Suggests About The Next Few Days

Posted by in Quantitative Study, VIX July 25, 2014

The study below is from last night’s Quantifinder. New readers may wonder why I use a day-of-week filter with this study. The VIX has a natural tendency to fall on Fridays and rise on Mondays. Because of this I typically separate out those days from the rest of the week when conducting VIX-based studies. This particular study looks at large (2.5% + ) mid-week rises in the VIX during times the SPX is closing at a 50-day high, like we saw on Thursday. All results are updated.

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Instances are a bit low, but the numbers are very lopsided and seem to suggest a downside tendency over the 1-4 day timeframe, with most of the damage being done in the 1st 2 days.

 

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Why Monday’s Selloff Could Lead To More Short-Term Selling

Posted by in Quantitative Study July 8, 2014

After closing at a new high on Thursday, selling was broad but not terribly deep on Monday as measured by the SPX. The study below, from the Quantifinder, examines these kind of situations.

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This type of broad, shallow selling will often lead to further SPX declines in the following days. Risks appear to far outweigh potential rewards when looking at metrics such as win/loss ratio and profit factor. The downside edge plays out quickly though, and has generally exhausted itself after the first couple of days.

 

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QE Big Time Swing System Stays Strong In 1st Half of 2014

Posted by in System July 7, 2014

I’ve updated the Quantifiable Edges Big Time Swing System overview page with results through June 30. There have been no trades since then. The system only averages about 1 trade per month, so I typically update the results bi-annually. The QE Big Time Swing System has been on a roll in 2014. It has had 6 trades. Five of these trades have been to the long side, and one short. One of the long triggers was a loser and the rest posted gains. The signals produced a net return of 7.18% for SPY (including dividends, commissions of $0.01/share, and an assumed interest rate on cash of 0.1%). The system also continues to make new equity highs.

The Big Time Swing System provides easy to follow mechanical rules. The standard parameters are not optimized and have performed quite well (they are the ones used for all performance metrics). There are only about 11 trades per year averaging 7 trading days per trade. 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 all SPY signals and possible entry/exit levels. This service is free for 12 months from the date of purchase.

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.

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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What SPY’s Gap & Reverse Pattern The Last 2 Days Suggests About Today

Posted by in Quantitative Study June 30, 2014

The way SPY has gapped and reversed the last couple of days triggered the below study in the Quantifinder. I updated all the stats.

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The edge isn’t huge but risk/reward has seemed to favor the bears under these circumstances. Much of the downside has been realized by the end of day 1.

 

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Implications of Tuesday’s Intraday High & Poor Close

Posted by in Quantitative Study June 25, 2014

Before tanking Tuesday afternoon the SPX managed to make a new intraday all-time high. The new high followed by a poor and downward close triggered the study below, which was shown in the Quantifinder Tuesday afternoon.

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Results here seem to suggest an upside edge. The edge appears especially strong when looking out 6-8 days.

 

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When Fed Days Post New Long-Term Highs

Posted by in Fed Study, Quantitative Study June 19, 2014

In “The Quantifiable Edges Guide to Fed Days” I discussed Fed Days that close at new highs. The basic finding was that when the market closed at a short-term high on a Fed Day, then it was likely to pull back over the next few days. But when it closed at a long-term high, then the rally was likely to continue. Below is a study from the guide that I updated for last night’s Subscriber Letter.

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This suggests further upside is likely over the next 1-2 weeks. The consistency referenced in the note at the bottom of the table is impressive and worth noting as well.

 

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Why The Weak 2-Day Bounce Could Be A Positive For The Next Few Days

Posted by in Quantitative Study June 17, 2014

SPY has now risen 2 days in a row but still failed to close above the close of 3 days ago. While this may be frustrating for those short-term bulls who were looking for a bounce, it has normally been followed by further gains. This can be seen in the study below, which was featured in last night’s subscriber letter.

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The stats appear to suggest a bit of an upside edge over the 1st 2 days. To see the importance of the “close < 3 days ago” filter let’s also examine those times when the 2-day rally was strong enough to close above the close of 3 days ago. Those results are below.

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As you can see, that small change makes a big difference. Two days out total net profit is about the same despite the fact that there are about 5 times as many instances.

Also notable about the next few days is that Wednesday is a Fed Day. For research regarding Fed Day edges, you may use the Fed Study label on the blog, or check out the Quantifiable Edges Guide to Fed Days book.

 

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An Extremely Overbought Short-Term Reading That Is Good News For The Bulls

Posted by in Quantitative Study June 9, 2014

The market is short-term overbought by a number of measures. One measure that short-term traders will sometimes look at is the 2-period RSI. On Friday the 2-period RSI for SPX close over 99 for the 1st time since February. Very strong moves that put a stock or market in an extremely overbought short-term condition can mean that a pause or pullback is needed short-term. But for the intermediate-term it often bodes well. This can be seen in the study below.

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The numbers here are basically neutral for the first week or so. But once you get out 2-3 weeks, it appears the strength has re-asserted itself and the market is often higher. This is an example of how strength can beget more strength. Traders may want to keep this in mind over the next few weeks.

 

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The Bullish History of Thursday After Memorial Day

Posted by in Quantitative Study, seasonality May 29, 2014

A few days ago I examined Memorial Day week seasonality. After exhibiting a positive bias for many years, the last four years have struggled. But that has not been the case on the Thursday after Memorial Day. Thursday has maintained a steady upward bias. This is illustrated in the chart below.

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Single-day seasonality can certainly be overrun by other forces, but the Thursday after Memorial Day has been a good one for many years, and that may be something that traders want to consider today.

 

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Evaluating A New SPX High & A Rising VIX

Posted by in Quantitative Study, VIX May 28, 2014

While the SPX closed up fairly strongly on Tuesday, the VIX also rose. Most often they trade opposite each other, so this kind of action is somewhat unusual. But VIX has a tendency to decline going into the weekend (Friday afternoons), and then rise when it returns from the weekend. So to see this action on the first trading day of the week is less unusual than at any other time. Still, combined with the SPX 50-day high, it has been often followed by a dip in the next few days. This can be seen in the study below.

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Results here appear squarely bearish for the 1-2 day time period. Traders may want to keep this in mind when setting their market bias.

 

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Memorial Day Week & The Changing Seasonal Picture

Posted by in Quantitative Study, seasonality May 27, 2014

The week of Memorial Day has shown some seasonal strength over the years. But it has faltered greatly the last few. The chart below examines SPX performance from the Friday before Memorial Day to the Friday after it.

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There was no substantial edge apparent throughout the 70s, but starting in 1983 through 2010 there was a bullish tendency. The last 4 years this week has really struggled. It is too early to tell if a permanent change in character has occurred, but traders who for years saw impressive returns during Memorial Day week may want to note the above. At the least I would say the upside tendency no longer appears as reliable as it once did.

 

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Low Volume No Longer Bearish?

Posted by in Quantitative Study, volume May 22, 2014

Light volume used to be a concern on a short-term basis. But light volume up days simply have not had the same bearish implications during the bull market of the last couple of years. The profit curve below is from an old study. It looks at light volume occurring when the market is above both a short and long-term moving average and closes up on the day. It exemplifies what I am talking about.

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This curve bottomed about 15 instances ago on 2/29/12 (Happy Leap Day!). After exhibiting a consistent downside tendency for several years, dynamics appear to have changed. They could certainly change back. It could be something temporary causing this (like quantitative easing), or it could be something more permanent. I’ll continue to keep an eye on this setup in the future. But for the time being, it is something I no longer consider to carry bearish implications.  And this is not an isolated study.  I have seen numerous low-volume examples over the last several months.

 

Volume analysis is not the only thing that sees changes over time.  Market “truths” are not static.  They are dynamic.  And traders need to pay attention as the market evolves.

 

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