When The Biggest Losing Week In Over A Year Is Made Up For The Following Week

Posted by in Quantitative Study June 25, 2022

The last two weeks have been quite a wild ride. The week ending June 17th was the worst 1-week decline for SPX (-5.79%) since March of 2020. This past week completely made up for that loss (despite it only being a 4-day week) with a gain of 6.45%. Below is a list of the 4 other times since 1930 that SPX followed the largest 1-week loss in a year with a complete reversal the following week.

SPX performance after biggest losing week in a year is reversed the next week.

1966, which is shown in the chart above, was the only other instance that the losing week was the worst in over 2 years. Results were overwhelmingly positive 1, 2, 3 and 4 quarters out for all 4 instances.

I don’t put a lot of faith in something that has only happened 4 times before, but if you are looking for a possible hopeful sign…well…this might be one.

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CBI Spikes Over 10 During A Downtrend

Posted by in CBI, Quantitative Study June 20, 2022

For years I have published research about the Quantifiable Edges Capitulative Breadth Indicator (CBI). In fact, the 3rd blog post ever, back in Jan 2008, was about the CBI. On Friday, the CBI jumped from 7 to 11. Over the years I have generally regarded any reading of 10 or higher to be a bullish indication. The study below is one I have shown many times. It looks a performance following a spike to 10 or higher. I also added a 200ma filter.

CBI >- 10 SPX <200

We see that most often during established downtrends the high reading has marked a point where the selling is nearly over (at least temporarily), and bounce is likely to begin. The 17-day curve can be seen below.

CBI >=10 SPX < 200 17 day SPX returns

That is solid consistency.  It is a wild market we are in. Based on the spike in the CBI to over 10, it appears that there is a good chance that we’ll see a bounce, and perhaps some intermediate-term relief fairly soon. Plenty more CBI research can be found here.

A more detailed version of this study appeared in the Quantifiable Edges Subscriber Letter this past weekend, along with several others. Take a free trial here if you want to see it.

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Fed Days: Pre vs Post-Announcement Action During Downtrends

Posted by in Fed Study, Quantitative Study June 15, 2022

In a blog post a few years ago I showed that the Fed Day edge has basically played out before the announcement even takes place. Returns after the announcement have been somewhat random.

In last night’s subscriber letter I decided to take a similar look, but only examining instances during long-term downtrends. Below is a look at how the SPY has performed from 2pm to 4pm on Fed Day’s where SPY closed below the 200ma the day before.

Fed Perf after announcement in down

Choppy and inconsistent with net results slightly negative. Not an appealing curve for bears or bulls. But now let’s look at performance from the close the day before the Fed Day until 2pm of the Fed Day during downtrends. (Announcements are typically at 2pm EST.)

SPY performance pre-announcement during downrends

Numbers here are very strong and the curve is incredibly consistent. I’ll also note that the last 11 instances, dating back to November 2011, all saw a gain.

This all reinforces my view that it is generally better to exit Fed Day-specific trades prior to the announcement.  Of course there is a risk of missing out on a bigger Fed Day rally, but over time that has been the more consistent and more profitable approach.

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A Rare “Inverse Zweig Breadth Collapse” Triggers

Posted by in Breadth, Quantitative Study June 12, 2022

A few years back I wrote about Zweig Breadth Thrusts in some detail. The Zweig Thrust takes a 10-day exponential moving average of the NYSE Up Issues %. It looks for a move from < 40% to over 61.5% within a 10-day period to signal there has been a breadth thrust.

Over the last 3 days we have essentially what could be considered the inverse setup trigger. The NYSE Up Issues % 10ema has fallen from above 61.5% to under 40% in 10 trading days. Rather than a breadth thrust, we have seen a “breadth collapse”. I looked back at other times where such an “Inverse Zweig Breadth Collapse” has occurred. I found the setup to be rare. The full list of instances can be found below.

SPX performance after NYSE Breadth Collapse

There have only been 10 instances dating back to 1928, and the current instance is the 1st one since 1943, when the S&P 90 was the primary S&P index. The modern S&P 500 inception occurred in 1957. So it is fairly amazing to see a breadth collapse so unusual that it has not happened in nearly 80 years. In looking at all the instances between 1931 and 1943, results were not encouraging for the bulls. On average the market was down 2.5% five days later, down 4.3% ten days later, down 7.1% one month later, down 7.3% three months later, and down 7.7% six months later. I will not put a whole lot of faith in a signal that has not triggered in nearly 80 years. But the fact that we have seen such an extreme breadth collapse the last few days does seem notable. And it sure doesn’t appear to be market positive for the next few months.

This study appeared in this weekend’s Quantifiable Edges Subscriber Letter. You may sign up for a free trial (no obligation and no credit card required) here.

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A 3x 70% Breadth Thrust Signal

Posted by in Breadth, Quantitative Study May 30, 2022

The strong breadth readings over the last few days triggered one of my oldest and most favorite breadth studies.

Strong intermediate-term returns after 3x 70% Up Issue days

There are a lot of positive numbers and the edge appears to be to the upside. Results between 70 and 90 days appear especially strong and consistent. Below is the full list of 80-day results.

Instances of 3 days of 70% Up Issues Breadth from 1957 - 5/2022

That is quite the winning record. Of course every time is different, and we are facing an unfriendly Fed at the moment. But similar breadth thrusts have a strong track record of seeing more gains over the intermediate-term.

More details on this study, along with additional research and studies, can be found in this weekend’s subscriber letter. Sign up for a free trial – no credit card required.

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SPX Performance Following Big Friday Selloffs

Posted by in Quantitative Study April 25, 2022

In this weekend’s subscriber letter I showed several studies suggesting the Friday selling could be an overreaction and that a bounce early this week appears likely. I noted that Fridays are often viewed as the day most likely to have a downside overreaction. This is partly because people may be looking to bail out ahead of the weekend and avoid getting hurt by further bad news. This concept is something I have discussed in the past here on the blog, mostly recently last November.

In recent years the bounce has not always occurred on Monday. Sometimes we saw more selling on Monday before the rebound started on “Turnaround” Tuesday. A couple of interesting charts from the letter are shown below. They look at performance following Fridays that close down over 2.5%. The 1st is a profit curve assuming a 1-day holding period. The 2nd chart assumes a 2-day holding period.

1-day SPX returns after 2.5% down on Friday
SPX 2-day returns after 2.5% down Friday

So in recent years the bounce has not as reliably begun on Monday, but it almost always did by Tuesday afternoon. We’ll see if form holds this week and we get a bounce in the next few days.

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Holy Bullish Thursday!!!!

Posted by in Quantitative Study, seasonality April 13, 2022

Stock market performance leading up to and around many holidays has often been bullish. This is something I have written about several times over the years. Holy Thursday is one such day that has done quite well. I have shown Holy Thursday stats a few times in the past. The chart and statistics below are all updated and zoomed in from previous studies to just show the last 24 years.

Holy Thursday SPX returns

Strong numbers and an impressive move from lower left to upper right suggests the market could have a seasonal wind at its back on Thursday.

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A Simple Turnaround Tuesday Study

Posted by in Quantitative Study April 12, 2022

As I have documented numerous times, “Turnaround Tuesday” has generally been the best day of the week under many circumstances for the market to begin to mount a bounce. Below is a simple look at 2-day pullbacks when SPX is below the 200ma and we are heading into Tuesday.

Turnaround Tuesday for SPX

The numbers appear quite bullish and the curve has seen an upward acceleration. Turnaround Tuesday’s have provided many edges over the years. Traders may want to keep this in mind on Tuesday.

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Yield Curve Inversions and SPX Returns

Posted by in Quantitative Study March 30, 2022

There has been a lot of talk recently about yield curve inversions and whether that means a recession is on the way, and how soon? And if there is a recession, will there also be a bear market? I decided to forget about economic forecast and just look at how the SPX did after a curve inversion. I looked at both the 2yr/10yr and the 3mo/10yr combinations. For the study I used Norgate Data, and looked back as far as my database went, which was 1976 for the 2yr rate and 1981 for the 3mo. Results can be found below.

SPX returns after yield curve inversions

Note that 21 trading days is approximately 1 month. So 42 days is two months, 126 days is 6 months, 252 days is a year…you get it.

Not many instances to build out a case here. Some good and some bad numbers. More bullish than bearish. Overall, the initial inversion does not seem to be a great timing signal. Academics can argue and tv talking heads can blather about potential consequences, but traders should probably look to better timing devices to make their market judgements. I don’t see myself factoring this into any trading decisions.

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Positive $SPX Seasonality After the 4th Friday in March

Posted by in Quantitative Study, seasonality March 28, 2022

There are some bullish forces kicking in the next few weeks. For one, the week after the 4th Friday in March has been a strong one over the last 24 years. (Not as much before that.) We can see this in the study below, which I showed in this weekend’s subscriber letter.

Positive SPX seasonality after 4th Friday in March

That is an encouraging looking curve and bullish stats. Traders may want to keep this in mind as they formulate their market bias this week.

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$SPY Short-Term Overbought In A Downtrend

Posted by in Quantitative Study March 18, 2022

In last night’s subscriber letter I showed a few studies suggesting the market was short-term overbought in a long-term downtrend, and that there appeared to be a short-term downside edge. Below is one of those studies, which also appeared in the Quantifinder yesterday afternoon.

SPY perf after run-up in downtrend

Those are some powerful numbers. And only 1 instance did not post a lower close in the next 3 days. Below is a look at the 4-day profit curve.

Despite the recent bump up, that is a long, persistent downslope. Traders may want to consider this as they set their market bias.

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Historical Performance After the State of the Union

Posted by in Quantitative Study, seasonality March 1, 2022

With tonight being the State of the Union Address I decided to take another look at an old study that examined SPX performance following past speeches. The data table below looks back to 1982. There were a few instances, such as 2001 and 2009 where the speech was not an official “State of the Union”, but was delivered under a different name. I have included those speeches in the results as well.

The stats do not suggest much of an edge. But the profit curves seem to tell a more interesting story. Here is the 5-day curve.

All the curves look something like this in that since the turn of the century the market has tumbled after these speeches rather than been inspired by them. I guess they just don’t write speeches like they used to.

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Talking Edges: Options Strategies for Directional Trades with Ali Pashaei

Posted by in Interviews & Mentions March 1, 2022

On Thursday this week I will be hosting a Webcast with guest Ali Pashaei. You are invited to attend live and ask questions if you wish. I will also be recording and posting it up to the Quantifiable Edges YouTube channel.

I’ve known Ali for a long time. He is a professional options trader, and he also runs the Options In Practice website, where he works with traders on implementing options strategies.

Ali and I will be discussing the use of options for directional trades – primarily short-term directional trades. I’m often asked by new Quantifiable Edges subscribers about taking the trade ideas I post in the letter, or utilizing the QE Numbered Systems, and implementing an option strategy around them. Ali will be sharing insights as a professional options trader on some of his favorite approaches to take advantage of short-term directional edges. I’m really looking forward to our talk, and hope you’ll find some of the ideas beneficial as well.

So join me on Thursday at noon EST using the link below, or if you cannot make it, keep your eye out on Friday, when I will be posting it up to YouTube and the Quantifiable Edges blog.

Video and Screen Sharing:

Online meeting ID: robh60

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

Once signed in, click on the phone icon:

Then choose “Mic and Speakers” and you should be able to hear everything through your speakers/headset.

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