A quick reminder that tomorrow is a Fed Day. I have written a lot about edges that occur on and around Fed Days. A good amount of information can be had by clicking the “Fed Study” label on the right hand side of the blog. (Or the link below.)
https://quantifiableedges.blogspot.com/search/label/Fed%20Study
And of course much more information can be found in the “Quantifiable Edges Guide to Fed Days” ebook and book.
About a year ago I showed a table on the blog that broke down op-ex week by month. Op-ex week in general is normally pretty bullish. March, April, and December it has been especially so. S&P 500 options began trading in mid-1983. The table below is an updated version of the one I produced last year. It goes back to 1984. I excluded op-ex week of September 2001 due to the extreme (and horrific) circumstances.
While December has been more reliable, total gains have been the largest during March op-ex.
About three years ago I did a post on triangle formations. I looked at success rates and profit potential of playing breakout of them. You may view those previous findings here. Last night in the subscriber letter I took a new look at these formations and what a break (like we saw yesterday) might mean.
For coding purposes I simply defined a triangle as a pattern where the most recent swing high was lower than the previous swing high, and the most recent swing low was higher than the previous swing low, and the market was currently between those two points. This admittedly isn’t the most sophisticated description, and some market technicians might suggest additional nuances should be included. Still, it seemed to be enough to identify the basic pattern of a tightening range.
I set the entry parameter to be a break above the most recent swing high or below the most recent swing low. Here it could certainly be argued that a trend line break might be more effective. I personally don’t believe it would make a whole lot of difference.
Once entered the strategy was designed to exit when price either reached its target or its stop area. To calculate the target price I simply took the height of the triangle and extended that past the entry point. The stop was set at the opposing swing high or swing low that would have triggered an entry in the opposite direction had the triangle broken the other way. No trailing stops or other trade management techniques were incorporated.
Results in general were much like those results I discussed 3 years ago. I did break it down a number of different ways, though. One interesting set of results came from looking at triangle breakdowns in the SPX when it was in a long-term uptrend. Those results can be seen below.
Entries and exits are as I described above. So in this case the results show the performance of shorting a breakdown. As you can see there has been an strong tendency for this trade to reverse back up and be stopped out before reaching its downside target.
More information on triangles can be found in last night’s letter. Subscribers are also being provided with the code so that they may explore triangle formations more on their own. If you’d like to read Thursday’s letter just click here to register for a free trial.
A quick test I ran this morning…(results based on $100k/trade)
With only 3 instances I wouldn’t get too worked up. I did find results interesting eough to share, though.
The market has been stuck in a trading range for the last couple of weeks, and that range has tightened even further in the last week. Looking at the SPX we have now seen 5 closes in a row that have occurred within the range of the 3/1/11 bar. Inspired by some gap-related research by Scott Andrews over at Master the Gap using a similar setup, I decided to take a more detailed look at this set of circumstances. What stuck out to me is that 1) the SPX has been in a long-term uptrend. 2) There was a sizable 1-day selloff. 3) The bears failed to follow through on that selloff, yet the bulls have not managed to move the SPX back out of the range either.
Over the last 22 years or so the SPX has burst higher out of this “failed selloff” and consolidation on a 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.
The Aggregator has been a terrific tool that has helped me greatly in both my index swing trading and for establishing a market bias for other trades.
The Aggregator System is based on the Aggregator and it calls for a position of 100% long, 100% short, or 100% cash. For my own trading I will often scale in and out of positions depending on factors such as the strength of the evidence, perceived risk, recent market volatility, the underlying trend, my intermediate-term outlook, and more. Still, the Aggregator System can be (and is) traded mechanically. After two stellar years (2008 and 2009) it hit a rough patch last summer. But more recently the Aggregator System has been on fire. Below is a chart showing every entry and exit signal since around Thanksgiving.
(click chart to enlarge)
Signals occur at the close and are posted to the Quantifiable Edges Systems Page 10-15 minutes beforehand. They are accessible by all gold subscribers. The signal is also published and discussed in each night’s subscriber letter. If you’d like to check out the Aggregator System in more detail (including a complete history as well as current signals) you may do so with a free trial to Quantifiable Edges.
The Trading Elite is a new site that features interviews with professional traders. The site is run by Jared Mast.
I was honored to be one of the first traders interviewed by Jared. The interview took place a few months ago, but it was posted when the site came on line in the last few weeks. You may check it out at
https://www.thetradingelite.com/?p=22
There are also interviews with other traders whom I greatly respect, including Scott Andrews, Ray Barros, Dave Landry, and more. So check out The Trading Elite. I have also added it to my blogroll.
(click chart to enlarge)
Last week was the 1st in which the SPX failed to make a new high since November. Prior to this it had been 12 straight weeks of higher intraweek highs. In last night’s subscriber letter I took a look at other times similar streaks existed and what happened after they ended. Below is a study that showed results of instances with at least 10 consecutive higher highs.
It’s tough to draw too much from the low number of instances. Early indications suggest the market is not immune from a short-term pullback, but that past instances have not marked major tops. If you want to take a closer look at other instances like the present where the SPX made higher highs for at least 12 weeks before faltering, it occurred on 11/5/65, 3/17/72, 1/8/93, 8/15/97, and 4/17/98.
A theme I have found in my research is that persistent uptrends rarely end abruptly. Often they will chop for a while and lose their persistence before rolling over. While much of this research has been focused on the daily timeframe, studies like this suggest it may also apply to weekly timeframes as well.
Sparked by overseas news the SPY has closed down 3 days in a row. I’m starting to see evidence that it is at a point where a bounce is becoming likely. The study below was posted in the Quantifinder yesterday. It was last shown in the 10/28/09 blog. I have updated the results.
I ran a test looking at gaps down of 0.75% or more following a US – only holiday. No edge was evident.
Below are results of some other studies looking at large gaps down from high levels:
The Traders Expo will be held at the Marriot Marquis Hotel in NY from February 20th – 23rd. I’ll be making the trip.
I am scheduled to speak on the 21st from 1:30 – 2:30pm. Topics in my talk include Fed-based edges, how market position affects short-term patterns, aggregating studies, and more.
Registration is free and you may sign up using the link below:
https://secure.moneyshow.com/msc/nyot/registration.asp?sid=nyot11&scode=020867
I’d welcome the opportuntiy to meet blog readers and subscribers. Feel free to stop me if you see me, or come by after the presentation and introduce yourself. I look forward to meeting some of you there.
In the last installment of “Using Quantifiable Edges to Your Advantage” I began discussing some of the tools available to subscribers. In that post I discussed the Catapult & CBI in great detail. Today I will review several other tools available to subscribers (though not in as much detail). I’ve discussed several of these before so blog readers may be familiar with some of the below.
The Aggregator – Much of my market bias is determined by the studies I conduct and consider “active”. The Aggregator is the tool I developed that weighs the estimates from those studies and gives me a bottom line bullish or bearish expectation. I also use a separate calculation called the Differential that measures recent market performance versus recent expectations. The Aggregator is the number one tool I use in determining my bias and setting up my index trades. More information on the Aggregator can be found by clicking the link below.
https://quantifiableedges.blogspot.com/2008/07/quantifiable-edges-aggregator.html
The Quantifinder – Over the course of the last three years I have published over 1000 studies in either the blog, the subscriber letter, or both. Studies that appeared to me to either have a substantial edge or to be notable and worth reviewing in the future are included in the Quantifinder. The Quantifinder is an engine that examines the current day’s market action and determines whether any of about 900 studies would trigger based on today’s action. Any studies that appear pertinent are automatically referenced and a link is provided so that users can go back and read what I wrote about the current setup the last time it occurred. More detailed information on the Quantifinder can be found by clicking the link below.
https://quantifiableedges.blogspot.com/2009/05/quantifinder-unveiled.html
The Numbered Systems – Quantifiable Edges subscribers have access to 11 different mechanical systems. These systems are designed for trading either large cap stocks or ETFs. Each night I publish a spreadsheet that shows any stock among the S&P 500 or any ETF among the 100+ on my ETF list that has triggered one of the numbered systems. Each system has its own webpage that comes complete with detailed rules for entry and exit. Also on the webpage is Tradestation code for each system. Subscribers may take the code and use it for their own testing, or they may change it-using it as a starting point to develop one of their own systems. (Those who are interested in developing their own systems and testing across a large group of securities using Tradestation will find detailed instructions on the website on how to do so.)
The Charts Page – Quantifiable Edges tracks a number of unique indicators on its charts page. These include indicators such as the CBI, the 3/10 Offset HV, the Volume SPYX indicators, and more.
The Archives – The Quantifiable Edges Subscriber Letter is now three years old. Over the last three years there has been some amazing market action which has led to a massive amount of research. All of Quantifiable Edges past letters and published research are available to subscribers for easy viewing in the archives section of the website. Many subscribers find themselves reviewing old letters thanks to being sent there by the Quantifinder, but if you feel current action is similar to something you’ve seen over the last few years and you want to see what research I was discussing then, you can simply pull up those letters on the archives page.
The Downloads Page – Over the last three years I have created a number of studies and special reports. Several of these along with special coding and spreadsheets can be found on the downloads page in the members section of the website.
Educational Videos – in 2010 I began hosting webinars for subscribers once or twice a month. In these webinars I discuss topics such as the Aggregator, the Catapult System, how to run back tests across large lists of securities, POMO indicators, day trading opening-range breakouts, and more. I have archived many of these webinars and made them available for subscribers to view any time.
Proprietary Data Download – Subscribers that like to do their own tinkering and development can download historical data on several Quantifiable Edges indicators. Data is available for the Volume SPYX indicators, the CBI, and the Aggregator.
The Subscriber Letter – The tool most utilized by subscribers is the nightly letter. It arrives nightly and is complete with my research and studies for the day along with my interpretation of recent studies. The Aggregator chart is always included and discussed, and the intermediate-term outlook is updated at least once per week. Additionally, it contains trade ideas that have been tracked and recorded over the last 3 years. It is not a tip-sheet, but the trade ideas, whether they are index trades, Catapult trades, or something else, have done quite well since the inception of the letter. They can all be found on the Trade Idea Results Spreadsheet, which is downloadable from the System page on the website by members at any time.
It all began with the subscriber letter. And while that has changed some over the years, the majority of the enhancements have come on the website. How traders ultilize the research, the letter, the indicators, and the systems is up to them. There is a lot available. Hopefully this series of posts will help new and experienced readers alike to better take advantage of Quantifiable Edges, regardless of whether you have a subscription or whether you just read the blog.
This completes “Using Quantifiable Edges to Your Advantage” – for now. New features will be released over the next several months and I’ll be sure to add them to the end of this series once they are available.
Since the 1/28 market drop due to Egyptian protests the market has risen without hardly a pause. It has now been 2 weeks since the last time SPY closed above its 5-day moving average. The 5-day is quite short-term so this is a fairly rare occurence. The study below examines other instances where this has happened.
Such persistence doesn’t typically last much longer before a pullback is seen. We see above what appears to be a decent downside edge. It appears most of the downside damage is done in the first 2 days.