Blog - Quantifiable Edges

Two 90% Up Days in One Week

Posted by Rob Hanna in Breadth, Quantitative Study June 16, 2010

On the NYSE yesterday Up Volume made up nearly 96% of all volume. This was the 2nd 90% up day in the last week (the other being last Thursday). I’ve shown before that this setup, while rare, has led to some extremely bullish returns. The last time I discussed this setup was in the May 28th Subscriber Letter. I’ve updated the stats below.

So while instances are low, returns have been very explosive. The results over the 1st few days are choppy – likely thanks to the fact that the 2nd 90% day will normally put the market in an overbought position. Once you get out over a week, the upside overwhelms.

Low Volume Rise To Short Term High In SPY

Posted by Rob Hanna in Quantitative Study, volume June 14, 2010

Below is one volume-related study that appeared in last night’s Subscriber Letter.

Implications appear bearish. The bearish influence is primarily seen in the first 2 days. Of course we are looking at a sizable gap up this morning so it will be interesting to see how it plays out.

I’ll Be Speaking At the L.A. Traders Expo On Friday June 11th

Posted by Rob Hanna in Uncategorized June 9, 2010

I’ll be speaking at the L.A. Traders Expo on Friday June 11th at 8am.

The presentation is titled Quantifiable Edges for Trading Fed Days. I plan on discussing a fair amount of my research and findings from the new book, “The Quantifiable Edges Guide to Fed Days“.

Below is a link to the Traders Expo site with a description of my presentation.
https://www.moneyshow.com/caot/WorkshopDetails.asp?wkspid=8FEA72887FD24662A1DD9F2B88776BBA

If you are unable to catch the presentation, you may be able spot me wandering around and hitting some other presentations on Thursday or Friday. I look forward to meeting some blog readers and subscribers there.

Introducing the Quantifiable Edges Guide to Fed Days!

Posted by Rob Hanna in Uncategorized June 7, 2010

Blog readers and Quantifiable Edges subscribers are likely well aware that I have published numerous studies and trade ideas related to Fed announcement days over the years. After much work and significant additional research I have now decided to release The Quantifiable Edges Guide to Fed Days.

The Quantifiable Edges Guide to Fed Days examines Fed Day historical tendencies from a vast array of angles. After reading the guide you’ll have a detailed understanding of what factors have had the greatest influence on performance both on and around Fed Days.

Day and swing traders alike will be able to use the guide to take advantage of historical probabilities. Whether it’s gaps, early morning moves, intraday tendencies, or edges that persist for several days, I examine it. And while none of the strategies discussed utilize time frames beyond 2 weeks, even intermediate-term and long-term investors would be well served to understand the information within.

And in addition to the Quantifiable Edges research you’re likely already familiar with, there are also special contributions and insights from Tom McClellan and Scott Andrews.

The Quantifiable Edges Guide to Fed Days is available in ebook format immediately and paperback within the next week. With the next Fed Day rapidly approaching on June 23rd I decided not to delay the ebook release any longer. I’ll be sure to post notification to again when the paperback version becomes available later this week.

For more information on the Guide and to order your copy, you may use the link below:

https://quantifiableedges.com/fedguide

99% Down Volume Days

Posted by Rob Hanna in Breadth, Quantitative Study June 7, 2010

The NYSE Up Volume % came in under 1% on Friday. In other words, over 99% of the volume was in declining securities. Breadth this extreme is remarkable. According to my database there have only been 4 other days since 1970 where the NYSE Up Volume % came in at under 1%. I’ve listed them below along with their next-day returns.

Traders may also want to a look at these dates on a chart. You’ll note that they all either marked an intermediate-term low, or were very close to one.

What Thursday’s Uninspired Rally Suggests

Posted by Rob Hanna in Quantitative Study June 4, 2010

Thursday’s market action was marked by low volume and a narrow range. Both came in at the lowest levels in over a month, Such uninspired action has often led to pullbacks in the past. Below is a study the Quantifinder identified that illustrates this. It was last published in the 7/20/2009 Subscriber Letter.

The edge isn’t huge but there does appear to be a downside tendency.

What the CBI’s Extended Stay in Double Digits Suggests

Posted by Rob Hanna in CBI, Quantitative Study June 3, 2010

Since the Capitulative Breadth Indicator (CBI) spiked a couple of weeks ago I’ve been updating it each afternoon on Twitter. Http://twitter.com/qerob Below is an updated chart of recent activity from the members section of the website.

The CBI closed Wednesday at 10, which is as low as it has been lately. This is now the 9th trading day in a row with a close of 10 or higher – a very long stretch for such an extreme reading. This raises the question of whether having such strongly oversold stocks take so long to bounce suggests anything. Is this failure of the CBI to drop back down a sign of more market weakness to come? Or does it suggest that perhaps it is just taking some time to carve out a meaningful bottom?

I ran some tests and frankly there weren’t enough instances to tell. The only two other instances where the CBI managed to stay above 10 for at least 9 days were 12/16/96 and 9/28/01. In both cases we saw strong rallies that lasted at least a couple of months. If I loosen the requirement to only requiring the CBI to remain at 10 or above for at least 6 days rather than 9, then two more instances arise. They were on 9/4/98 and 7/25/02. These didn’t mark bottoms but they were followed by powerful 1-month rallies.

This isn’t decisive proof that a rally is about to emerge. Still, the stubbornly high CBI certainly doesn’t appear to be bad news.

A/D Line Highs And Maximum Risk

Posted by Rob Hanna in Breadth, Quantitative Study June 1, 2010

This past week I had the pleasure of interacting with Tom McClellan of McClellan Financial Publications (https://www.mcoscillator.com/). Tom shared a study with me that supported some breadth related studies from the Quantifiable Edges Subscriber Letter that I’d been discussing the last few weeks.

Tom’s study looked to measure market risk when the A/D line was making new highs. To accomplish this he examined any time the Advance/Decline line made a 3-year high and then looked forward 3 months to see what the max drawdown was in the SPX. The SPX has not managed to make a 3-year high in the A/D line recently. It DID make a 2 ½ year high about a month ago though. So I re-ran the study with Tradestation data (which should be very similar) and used a requirement of a 2 ½ year high instead of 3 years.

Note: A full year typically contains about 252 trading days. For purposes of this test I rounded that down to 250 and multiplied by 2.5 to get 625 trading days. To estimate 3 months I used a 63-day period. Also note that the flat spots on the chart are times when the high A/D condition is not met.

(click chart to enlarge)

As you can see above, since 1970 there has only been one instance that saw a larger drawdown over the following 3 months than we’ve already seen this past month. Other corrections were generally capped at between an 8% – 10% decline. This doesn’t mean we can’t drop precipitously from here. The market has demonstrated several times in the past few years that it is completely capable of breaking records. It does show that we’ve reached an area where risk has pretty much maxed out in the past under similar conditions – at least temporarily.

John Forman’s New Trader FAQ’s

Posted by Rob Hanna in Uncategorized May 28, 2010

John Forman, trading coach and author of The Essentials of Trading book and blog has recently put out a promising new resource for traders. It’s the New Trader FAQ’s book.

Through his coaching and his blog John has gained extensive experience working with beginning traders.

In putting the book together John first compiled a huge list of questions most asked of him by beginning traders. They include topics related to such things as education & learning curve, trading mechanics, analysis, systems, trader psychology, brokers, and trading careers.

Rather than just answer all the questions himself, John was able to get 11 other trading professionals to offer their perspectives. You’ll no doubt recognize many of the contributors. I’m pleased to say I was able to contribute a small part to the effort.

I’m even more pleased at how well the whole book came out. John truly did a terrific job. And while the intent was to help beginning traders with informative and diverse answers on a wide range of topics, I’d have to say John overshot his goal. You don’t need to be a beginner to gain something from the book.

So if you’re looking for something to read this long Memorial Day weekend, you may want to check out the New Trader FAQ’s. John even lists all the questions on his site for those who would like more detail.

Very Large Gaps Up From A 10-day Low

Posted by Rob Hanna in gaps, Quantitative Study May 27, 2010

As I type at 8am EST the SPY is up about 1.7% pre-market. Going back to 2003 there have been 9 times the SPY has gapped up at least 1.5% after closing at a 10-day low. Every time it has risen more between the open and the close. Below I’ve listed all the instances.

Should this morning’s gap hold until the open we could see a short-covering rally ensue. You should note, though that drawdowns have been sizable in several instances (last column).

Late-Day Market Surges Revisited

Posted by Rob Hanna in Quantitative Study May 24, 2010

Some people astutely noted that this study on late-day market surges triggered on Friday. Unfortunately, since the original publication, the edge has not persisted. Below is an equity graph to demonstrate.

I’ve market the original study date on the chart. Up to that point there had only been 2 out of 12 instances that rose the next day. Since then it’s been a coinflip but the gainers have strongly outsized the losers.

In the original post I listed all of the instances up to that point. Below I have listed all the instances since then. Market behavior is always evolving. It is important to continually monitor edges to make sure they are still providing an edge. This is something I constantly do in the Subscriber Letter. Over the last year and a half since I first published the study the market has: 1) Shown a much greater inclination to experience these late-day market surges. There have been more instances in the last 2 years than in the previous 25 years. 2) With the market more inclined to experience a surge, it’s meaning also seems to have changed. It no longer seems to suggests a downward edge for the next day.

CBI Junps Suggesting theMarket Will Soon Bounce

Posted by Rob Hanna in CBI May 21, 2010

Yesterday’s huge selloff caused the CBI to spike up from 4 to 17. In the past I’ve discussed how a CBI of 10 or higher has typically been a good long signal. I’ve shown that a trading system that went long when the CBI hit 10 or higher and then sold only when it had dropped back to 3 or lower showed a very favorable edge. Below is an updated list of all instances since 1995.

Note that while the returns are very good, many of the trades suffer some sizable drawdown along the way. I believe there is an upside edge but it is unliekly to be an easy trade.

Potential Huge CBI Spike on Tap

Posted by Rob Hanna in Uncategorized May 20, 2010

As of the close on Wednesday the Capitulative Breadth Indicator (CBI) was at 4.

With prices at the current levels as of 2pm Thursday the CBI is set to spike to 16.

This is an extremely oversold level. Ten and above has often led to market bounces. Not always immediately, though. It got up into the 40’s in July 2002 and October 2008.

For more on the CBI and what this all suggests you may want to check out the CBI posts.

https://quantifiableedges.blogspot.com/search/label/CBI

For more CBI updates toward the close you may follow me on Twitter.

https://twitter.com/qerob

A Big Gap Down From A 5-day Low

Posted by Rob Hanna in Uncategorized May 20, 2010

Lots of different ways to look at this morning’s gap.

Here’s one with results typical of what I’m seeing.

From 1% Up Intraday to 1% Down Close

Posted by Rob Hanna in Quantitative Study May 19, 2010

Below is a study that appeared in last night’s Subscriber Letter that looks at Tuesday’s volatile action.

A few notes:

1) While results are explosive, instances are very low. Rather than including this among my Active Studies List I have simply decided to track it going forward.
2) Without the 200ma filter the results are no longer bullish. There were some big declines followingthis type of action during a downtrend.