Blog | Quantifiable Edges | Assessing Market Action With Indicators & History

What Follows Solid Gains During OpEx Week

Posted by Rob Hanna in Quantitative Study March 24, 2014

Strong moves on most opex weeks will often be followed by a pullback the following week. This can be seen in the study below, which I have shown a number of times over the years in the Subscriber Letter.

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The stats suggest a short-term downside edge. Four days out the SPX has closed lower more than 2/3 of the time, and the losers have been a little larger than the winners on average. Traders may want to remain aware of the strong possibility of a pullback this week.

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Where SPX Would Be Without The Fed

I have shown how powerful Fed Days have been a number of different ways over the years. Ever wonder where the market would be without them? The chart below shows the daily points gained and lost on every day since 12/31/97 through 3/18/14, excluding Fed Days. Keep in mind, there are only 8 days per year being left out.

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As you can see, without Fed Days the SPX would still be about 15 points below the 2007 high, and close to 50 points below the 2000 high!

Thanks Fed!

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Implications of Two Days of Very Weak Volume

Posted by Rob Hanna in Quantitative Study, volume March 19, 2014

One notable about Tuesday’s rally is that it marked the lowest volume in over a month for the second day in a row. The Quantifinder identified a study I did about 3 years ago that looked at low-volume setups like this when SPX closed above both the 10-day and 200-day moving averages. I went back and took another look last night. Below is an updated results table.

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The numbers appear to suggest a downside edge over the first couple of days. Of course results for today and tomorrow will be heavily influenced by the market’s reaction to today’s Fed announcement.

Fed Days have long carried a strong upside bias. But when the market is already near an intermediate-term high this upside bias has not been as prevalent.

I am certainly seeing some crosswinds at the moment. The volume-related study above appears to be a negative, and while it is not the only factor ruling the market at the moment, it seems worth some consideration.

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Strong Breadth on Days the SPX Declines

Posted by Rob Hanna in Breadth, Quantitative Study March 16, 2014

With small-caps doing well on Friday but large-caps struggling the Up Issues % was unusually strong for a day that the SPX declined. The study below is from the Quantifinder and it looks at days like Friday where SPX declined despite strong breadth.

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The edge isn’t huge, but it does appear to be worth a closer look. The profit curve below gives a better idea of how it has played out over time.

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While the curve certainly appears choppy, it has persisted upwards. I believe this study is worth taking into consideration when determining my market bias.

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What The Gap & Reverse Pattern Of The Last Two Days Is Suggesting

Posted by Rob Hanna in Quantitative Study March 13, 2014

The way SPY has gapped and reversed the last couple of days triggered an interesting study in the Quantifinder. An updated version of that study is below.

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It appears the choppy conditions may continue and the next chop is a little more likely to take the market lower. The edge isn’t huge but risk/reward has seemed to favor the bears.

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When SPY Makes A Short-Term Low For The 1st Time In A Long Time

Posted by Rob Hanna in Quantitative Study March 12, 2014

Tuesday SPY managed to close at a 5-day low after going a whopping 24 days without doing so. The study below is one I have shown in the past. It examines times when SPY closed at a 5-day low for the 1st time in over 2 weeks. All stats are updated.

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Results here suggest a moderate upside edge. I will also note that I looked at longer periods (15 days, 20 days) without a new low, and the 4-day results were very similar to those shown above. The lesson with this study seems to be that persistent uptrends normally wither before they die, rather than turn on a dime.

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Double Outside Days

Posted by Rob Hanna in Quantitative Study March 10, 2014

QQQ made both a lower low and a higher high on Friday versus the day before. That is often referred to as an “outside day”. Outside days are not terribly unusual. What is unusual is that it happened for the 2nd day in a row. In the past I have shown that double outside day patterns like this have frequently been followed by short-term rallies. I last discussed this in the 11/14/13 blog. Below is an updated results table.

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Results here appear quite positive. Using the 1-day exit criteria, I generated the profit curve below.

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The strong, persistent upslope here is impressive.

It’s also worth noting that this pattern has also been bullish for SPY.

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The Employment Report Intraday Hot Streak

Posted by Rob Hanna in Intraday, Quantitative Study, seasonality March 6, 2014

At Overnight Edges today I published a study that showed the incredible hot streak the market has been on during nights when the Employment Report was released. It got me to thinking…I know the market has done well leading up to the open, how has it done after the open? The answer is below.

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The numbers here were surprisingly good. I would have thought there would have been some give back after some of those gaps up. But the market has continued to add to its gains (or recover from overnight losses) in almost every instance. Below are all the instances since the beginning of 2013.

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Instances here look no less impressive than the summary stats above. The only instance that lost more than $0.02 was the one on 9/6/13. Intraday traders may want to keep this bullish tendency in mind as they navigate their day on Friday.

Of course if you put these 2 studies together, and look at Thursday’s close to Friday’s close, then the numbers are even more astounding. The only loser under that scenario would have been the 4/5/13 instance which saw strong intraday gains, but could not fight its way all the way back from the massive gap down it endured.

No matter how you look at it, Employment Days have been hot, and traders should be aware of that fact when considering their strategies.

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The February Barometer

Posted by Rob Hanna in Quantitative Study, seasonality March 3, 2014

In the 2/3 blog I examined the “January Barometer”.

As a super-quick review, the January Barometer suggests that a positive January will very often be followed by the next 11 months closing out the year positively. A down January (like we had this year), has led to more inconsistent returns. Use the link above for the details.

When I ran that test I also looked at other months. What I found was that a strong February actually predicted a strong next 11 months better than any other month. Below are the February results.

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The numbers here aren’t massively better than a “January Barometer”, but if you like using a month as a barometer, February appears to be the best one. And the edge has been even stronger since 1988. Below is the list of instances over the more recent time period.

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As you can see, 2011 was the only recent loser, with 14 of the last 15 positive Februaries leading to gains over the next 11 months.

This is not a study I plan to rely on for establishing a market bias. I view this more as an academic exercise. A few reasons for this: 1) I don’t like the way the test was developed. I did not start with a reasonable premise and test it. I data-mined to find the best month. This approach does not give me confidence in the results. Some month is bound to be best, and it could be nothing more than random noise. 2) I see no reason that February’s results should be predictive of the next 11 months. You could argue that momentum at this time of year may carry through nicely, but I think that is likely a weak explanation. I suspect this study is only slightly better than the Super Bowl indicator or the Sports Illustrated Swimsuit Cover indicator. But I did find it interesting, so I thought I would share it.

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Short-Term Momentum From Breakaway Gaps

Posted by Rob Hanna in Quantitative Study February 25, 2014

On Monday SPX broke out and made new highs for the 1st time since January. And a strong open meant that SPY left an unfilled gap up. The study below is one I have shown a number of times in the past, but I always feel it is worth a reminder when we have a new SPY breakout. It demonstrates the importance of the unfilled gap in generating momentum for the next few days.

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Results here are strong across the board. Below is an equity curve using a 5-day holding period.

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The nice upslope on the equity curve confirms the bullish inclinations.

Technicians will often use the term “breakaway gap”. This suggests the gap occurs on the same day as a base breakout. The idea is that the new high causes excitement and the gap leaves a good amount of people sidelined or stuck short. When it doesn’t immediately fill, it leads these people to chase and helps to propel the market even higher.

Now let’s look at instances where the 50-day high breakout was not accompanied by an unfilled gap. Interestingly, the number of instances was nearly the same.

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As you can see these moves to new highs that don’t start with an unfilled gap are much less reliable.

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Historical Returns Before President’s Day

Posted by Rob Hanna in Quantitative Study, seasonality February 14, 2014

Today is the last day before the President’s Day holiday. Over the last 22 years the Friday before President’s Day has been a poor performer. I showed this a couple of years ago in the 2/17/12 blog. I have updated the results in the table below.

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Inclinations appear squarely bearish. Not shown above is that the average run-up has been 0.2%, and the average drawdown has been -0.9% over the years. Additionally, 2003 (+2.14%) was the only year that closed up more than 0.25%. The other 4 years in which SPX closed positive saw very small gains.

Also…Happy Valentine’s Day!

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Implications of a Persistently Stretched VXO

Posted by Rob Hanna in Quantitative Study, VIX February 13, 2014

Both the VIX and the VXO have been extended to the downside in recent days. Such stretches suggest a collapse in fear among investors. The study below was last seen in the 12/27/13 blog. It looks for stretches of 15% or more that have persisted for three days.

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Based on the stats table there appears to be a downside inclination. The note at the bottom of the study is especially interesting. Nearly every case has experienced an almost immediate pullback, but those that didn’t went without pulling back for a long time.

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Introducing Our Newest “Numbered System” – 88

Posted by Rob Hanna in System February 9, 2014

Quantifiable Edges has provided our gold subscribers access to our “numbered systems” since 2008. But we have never taught any of them to non-subscribers, until now. Our newest system – System 88 uses the Quantifiable Edges Double-B indicator to identify opportune times to enter pullbacks in strong uptrends. The Double-B also provides the exit trigger.

The Double-B indicator is a Bollinger Band derivative that not only measures overbought/oversold, but also automatically adjusts based on the strength and direction of the trend.

System 88 seeks to identify high-probability entry opportunities in strong uptrends. It then looks to ride that trend for a while. In a special webinar Rob Hanna will teach traders all the rules and logic behind Quantifiable Edges’ System 88. He’ll also show how the Double-B was constructed. And he’ll discuss adjusting the parameters for your own use.

Additionally, webinar attendees will have access to the full Tradestation code for both the indicator and the system. They’ll also be able to download a Tradestation Workspace that has the Double-B indicator and System 88 preset for viewing and testing. Purchasers that do not use Tradestation can download the code in a text file format so that they may more easily convert it to their own platform.

The System 88 Webinar is a paid event. And while there is no guarantee of performance moving forward, your satisfaction with the webinar and the information is guaranteed! Our 1^st two live events will be held on Monday Feb 10^th and Wednesday Feb 12^th!

Live webinars are anticipated to last about 30-45 minutes, depending on the number of questions. But don’t fret if the live events don’t meet your schedule. All System 88 purchasers will be able to view a recorded version. And if you have any questions, email support is available.

For more information on System 88, including performance metrics and an upcoming schedule of webinars, you may go to the Quantifiable Edges System 88 signup page.

Quantifiable Edges CBI Hits 10 For First Time Since November 2012

Posted by Rob Hanna in CBI, Quantitative Study February 6, 2014

One notable about Wednesday’s action is that the Quantifiable Edges Capitulative Breadth Indicator (CBI) reached 10 for the 1st time since November of 2012. In the past I have shown a fair amount of research demonstrating CBI levels of 10 or greater have generally been enough to lead to a market rally within a few short days. One simple strategy I have shown in the past that could take advantage of a high CBI is to purchase SPX when the CBI reaches 10 or higher, and then exit this trade when the CBI gets back down to 3 or lower. CBI history is available back to 1995 (and Quantifiable Edges gold subscribers may download it directly). Results below show how this strategy would have performed from 1995 – present.

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As you can see, results have strongly favored the bulls. A very high percentage of the instances would have led to winning trades, and overall gains have swamped overall losses by over 10x. Another thing to consider it the market’s long-term trend. Personally, I have found that relatively strong selloffs during long-term uptrends are substantially different than relatively strong selloffs during long-term downtrends. In other words, CBI readings > 10 have occurred under different conditions and led to different kinds of rallies depending on whether the market was trading above or below its 200ma. Below is a listing of all 9 previous instances above the 200ma.

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As you can see, instances above the 200ma have been more reliable, but less powerful. The average trade under these circumstances is just over 1%. And the largest winning trade was 2.36%. But the average trade when below the 200ma has been 3.2%. This is larger than the largest above the 200ma, and nearly 3x the average. So I believe it is important to make this distinction when setting expectations for the bounce over the next few days. While the bounces have not been as strong, the drawdown has been much more controlled under these circumstances. The largest drawdown so far has been less than 4%. Of course nothing is certain, and new history is constantly changing the odds. But as far as short-term indicators go, the CBI is one of my favorites for predicting a short-term bounce.

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One Look At The January Barometer

Posted by Rob Hanna in Quantitative Study, seasonality February 3, 2014

The January Barometer is a fairly famous study from the Stock Traders Almanac. It says that “as goes January, so goes the year”. In other words, a positive January will typically lead to a positive year, while a negative January can be a warning. Let’s look at how the SPX has done for the remaining 11 months of the year based on how January performed.

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The numbers show that in years that January has done well, the rest of the year has typically fared well also. Below is a profit curve.

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Now let’s look at how Feb-Dec has done after a down January.

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Not as many instances, but there does not appear to be the same kind of bullish tendency here. More of a crapshoot. Below is a curve.

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Certainly not a chart to trade off of. So it would have been nice if January finished positive. But it is not a sign of impending doom. Just that we don’t have the kind of momentum that would be preferable.

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