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

Happy Tax Day!

Posted by Rob Hanna in Quantitative Study, seasonality April 15, 2013

Today is the day taxes are due in the U.S. The reason tax day may be important is that it is the last day that people can make IRA contributions to count for the previous tax year. This can create a last-minute rush and you will often have an inflow of funds heading into the market right around and on April 15th. Fund managers will often put this money to work immediately and it creates a positive bias for the market. Tax Day itself seems to have benefited over the years. Below are some stats that demonstrate this.

What Has Followed Large Unfilled Employment Day Gaps Down

Posted by Rob Hanna in Employment Days, Quantitative Study, seasonality April 8, 2013

Employment Days will often occur in conjunction with a strong price move because the employment report is frequently viewed as an important piece of economic data. Still, it has been quite rare to see the employment report lead to a large gap down that never fills during the day. This happened on Friday. When it has occurred in the past selling has generally continued into the next trading session. This is something I last showed in the 9/6/11 subscriber letter. An updated list of all instances is below.

Since the beginning of 1997 not only have all instances closed negative, but intraday drawdown has been larger than intraday run-up in every case. Traders may want to keep this in mind today. (Of course fighting against this is the recent tendency of the SPX to change direction every day. An up close Monday would mark the 13th day in a row that SPX has changed direction, leaving the streak as the single longest ever – it is currently tied with a 1994 streak at 12.)

As usual, it should be an interesting day..

When Large Caps Hold Up Relatively Well On A Decline From A High

Posted by Rob Hanna in Quantitative Study April 2, 2013

Large-caps definitely held up better than the rest of the market on Monday. Coming from a 50-day high, this caused the study below to trigger. It was last seen in the 9/18/12 letter. Stats are all updated.

The implication here is that when the SPX is coming off a high level and it holds up relatively well despite broad selling, it will often have further to drop. The selling in the broad market could spill over into the large caps. There’s a chance they could even play catch-up to the downside. The good news for bulls here is that the bearish inclinations have only lasted a couple of days.

An Intraday Look At Holy Thursday Historical Performance

Posted by Rob Hanna in Intraday, Quantitative Study, seasonality March 27, 2013

Last year I showed that the Thursday before Easter (also known as Holy Thursday) has exhibited a bullish inclination over the years. Today I thought it would be interesting to break out that performance by overnight vs. intraday returns. Intraday returns will be shown here. Overnight returns can be found on Overnight Edges.

The study below shows historical performance from open to close on Holy Thursday.

Numbers here are solidly bullish, though not as overwhelming as the total numbers would suggest. This is thanks to much of the strength coming the night before. Below is the list of instances.

Instances highlighted in purple are the 5 that started with a gap down. All 5 of these gaps were filled at one point during the day, and all 5 instances saw SPY close above where it opened (with 2 of them making for the largest 2 gains of the 19 listed).

There are numerous ways to try and take advantage of this information. In general, traders should be aware that Holy Thursday has exhibited seasonal strength, and that strength has often begun to exert itself the night before. For a more detailed breakdown of the overnight returns, check out today’s Overnight Edges blog post.

An Unusual And Potentially (Short-Term) Bearish Inside Day

Posted by Rob Hanna in Quantitative Study March 27, 2013

Yesterday was interesting and unusual because it posted an unfilled gap up and a close above the open, but still finished as an inside day. This triggered the below study in the Quantifinder.

Implications are somewhat bearish for a 1-day time frame. I also discussed this setup in the subscriber letters over the weekend, because not only did it trigger yesterday, but also it triggered on Friday.

A Fed Day Setup That Has Seen SPX Higher 3 Days Later Every Time Since 1982

Posted by Rob Hanna in Fed Study, Quantitative Study March 20, 2013

Tuesday’s decline was the 3rd down day in a row. Many people are now aware that Fed Days have historically had a bullish tilt. So 3-day selloffs leading up to Fed Days have been quite rare. But they have also been a very bullish setup. The table below shows the hypothetical results of buying at the close on the day before a Fed Day if it was at least the 3rd consecutive lower close. The exit is 3 days later.

All of the 15 instances saw the market higher 3 days later. These are some very encouraging numbers for the bulls. I do have a concern here. There has only been 1 instance in nearly 15 years. And that took place in 2005. The setup has certainly been potent over a long period of time. But I am much less enthused about it than I would be if all these instances would have taken place over the last 10 years. Still, with an undefeated record I think it is worth consideration.

The 1st Short-Term Closing Low In A While

Posted by Rob Hanna in Quantitative Study March 19, 2013

The market had gone quite a while without a pullback before the last 2 days. Monday, for the 1st time in a while, SPY closed at a 5-day low. The study below looks at at other instances of SPY closing at a 5-day low after going at least 2 weeks without one.

Results here suggest a decent upside edge.

Large Gaps Down When The Market Was Near A Long-Term High

Posted by Rob Hanna in gaps, Quantitative Study March 18, 2013

It looks like we should see some strong action on Monday. News out of Cyprus has S&P futures down about 1.5% as I type this late at night. I decided to look back at other times that SPY was trading near a 200-day high and then gapped down over 1% overnight.

There have not been a whole lot of instances, but early indications suggest there could be more selling after the open. Below is a list of all the instances.

November 2009 was the only instance that put in much of a gain. And even that one failed to fill it gap at any point during the day. None of the others even bounced back as much as 0.6% on an intraday basis. If the market does open as weak as it appears it may at this point, then chances of a strong upside reversal don’t appear very good.

Reviewing Performance After Strong Closes Going Into OpEx

Posted by Rob Hanna in Quantitative Study March 15, 2013

The study below looks at times the market closed at a high level just before options expiration. I last showed it on the blog last June. It generally has been a bad time for an overbought market.

The numbers here are fairly compelling and suggestive of a possible downside edge over the next week.

Putting A Series Of Higher Highs Into Context

Posted by Rob Hanna in Quantitative Study March 12, 2013

I’ve often spoke in the past of the importance of putting smaller patterns into proper context based on larger patterns or trends. In Sunday night’s Gold & Silver Subscriber Letters I showed some studies that exemplified this concept nicely.

The studies looked at the possible impact of 5 consecutive days of SPY making an intraday high. (This triggered at the close on Friday.) I broke it down to see all times the 5 higher highs were accompanied by a 50-day high versus times they weren’t. First let’s look at times where 5 higher highs occurred without a 50-day high.

Stats over the 1st few days suggest a possible downside edge. After 5 higher highs the market will often need a breather.

But what of times (like Friday) when a strong uptrend exists and the market is also making a 50-day high? Those stats can be found below.

Interestingly, the number of instances was exactly the same. But with an intermediate-term rally also occurring the tendency to pull back no longer exists. So 5 higher highs do not appear to suggest a bearish edge in situations like the one that set up a few days ago.

An Updated Look At Op-Ex Week Returns By Month

Posted by Rob Hanna in Quantitative Study, seasonality March 11, 2013

There is a possible seasonal influence that could have a bullish impact on the market this week. 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 on the blog the last few years in March. It goes back to 1984 and shows op-ex week performance broken down by month. All statistics are updated.

While December has been more reliable, total gains have been the largest during April and then March op-ex.

Book Review – Mean Reversion Trading Systems by Howard Bandy

Posted by Rob Hanna in Uncategorized March 8, 2013

I am just about finished with Howard Bandy’s new book, “MeanReversion Trading Systems – Practical Methods for Swing Trading”. While I very rarely review books here on Quantifiable Edges, this one really stands out and deserves some attention.

Howard goes through every step of the systems-building process. He examines several different oscillators. He scrutinizes entry & exits techniques. He discusses risk control. And on top of it all, he provides code for everything he covers in the book. It is $50 for the book, which is a ridiculously low price. There are trading courses that cost many thousands of dollars that don’t provide as much good information as Howard’s “Mean Reversion Trading Systems”. All of the coding is done in Amibroker, which unfortunately I do not use. But since he lists it all out, those who use other programs like me can translate it into Tradestation, R, or whatever. And here is the kicker for anyone that does use Amibroker – Howard has actually set up a web page where book purchasers can download the code at no additional cost.

I commend Howard on his efforts. If you have an interest in developing your own trading systems, this book is a wonderful resource that I would highly recommend.

What The Recent Consolidation Hints At

Posted by Rob Hanna in Quantitative Study March 5, 2013

After the big reversal down last Monday the market has recovered quite a bit. What is interesting though is that it has closed within the range of that 1 bar every day for the last week. The bears failed to follow through on that selloff, but the bulls have not managed to move the SPX back out of the range either. This triggered the study below, which I last discussed a couple of years ago.

Over the last 24 years or so the SPX has burst higher out of this “failed selloff” and consolidation on a fairly consistent basis. But the implications are only bullish for a few short days. After that there does not appear to be a decided edge for either the bulls or the bears. I have a bit of a concern, though. Technically, the current setup does qualify. But the last 5 days have been a fairly nice rally. SPX just barely has missed breaking out of the range, and it has not “felt” like a 5-day consolidation. So while the study suggests a likely pop higher in the next few days, the likelihood may not be quite as strong as suggested.

The Quantifiable Edges Study of Tops

Posted by Rob Hanna in Uncategorized February 27, 2013

A while back I did a study of major market tops for Quantifiable Edges Gold & Silver subscribers. The study goes back to 1970 and considers every SPX top that was followed by a decline of at least 20%. I identified two indicators that I found especially useful in determining when conditions may be ripe for a possible top. I recently updated the QE Study of Tops, and received a lot of positive feedback on it. A primary reason that I was inspired to update the study is that one of the indicators is currently flashing a warning sign. So I decided I would also make the study available to non-subscribers for a small fee.

The Study of Tops can now be purchased on the Quantifiable Edges website for $5.99. If you purchase a Quantifiable Edges subscription within two weeks of your Study of Tops purchase, your $5.99 will be refunded.

I certainly hope everyone finds it interesting and valuable. If you purchase it and don’t feel it was worth the $5.99, then simply send me a note explaining why (relatively nicely), and I will refund your money.

Lastly, I also included a coupon (good through March 31) for a free trial of any Overnight Edges subscription as part of the Study of Tops.

You may purchase the Quantifiable Edges Study of Tops by clicking here.

A Failure of Bulls Followed by a Failure of Bears

Posted by Rob Hanna in Quantitative Study February 27, 2013

On Monday the bulls tried to make a move higher and failed, making for a higher high and a lower close. On Tuesday the opposite happened with a lower low and a higher close signifying a failure by the bears. This action triggered the below study in the Quantifinder. It was last seen in the 3/3/11 Subscriber Letter. I have updated the results.

Odds across the board, from Win % to Win/Loss Ratio and Profit Factor are all impressive, and suggestive of a short-term upside edge.