On February 11th the market put in a Follow Through Day according to the original IBD definition requiring at least a 1% rise in one of the major indices on rising volume. I mentioned the Follow Through Day and dedicated a few posts to it in mid-February. The S&P is now less than 1% from new highs and very close to hitting a level that that would qualify the current rally as “successful” based on the rules I set up in the original Follow Through Day test a couple of years ago. This would mean the lesser of 1) a new high or 2) a rally twice as large as the distance from the close of the Follow Through Day to the bottom of the downmove. Meanwhile the Russell 2000 is already hitting new highs.

In the last few years IBD has changed their rules and stated that a 1.7% rally on higher volume should be required instead of a 1% rally. Ironically the first major index to actually put in a 1.7% rally on higher volume since the February bottom is the Russell 2000, which did it on Friday – as it was hitting new highs. Not a great bottom call when you’re already at new highs. Over the last few years I’ve suggested ignoring the new rule. In a study I did a little over 2 years ago I showed how waiting for a 1.7% FTD would have missed several rallies. The current instance now serves as yet another example. Not that I a see a huge value in the 1% FTD rule, but it has been at least marginally effective and can be used to set up a positive risk/reward scenario. Additionally, requiring a 1.7% FTD not only puts you at risk of missing the rally but it also hasn’t proven to be any more predictive than the original 1% requirement.

A quick reminder rather than a new study this morning…

Typically we see the 1st day of the month provide a bit of a bullish tendency. This tendency really began to take hold in the late 80’s when 401k plans started to become more popular and regular stock inflows began to occur at the beginning of the month. Last July I broke this edge out by month. Below is a copy of that chart (not updated).

(click chart to enlarge)

I’ve circled the March stats. You can see that over the last 23 years March has been the 3rd worst both in terms of “% profitable” and in terms of “net profits”. There have been 11 winners and 12 losers and the total profits have been right in line with long term drift. So while April – July show a bit of an upside edge at the beginning of the month, March hasn’t had the same past results.

The Quantifiable Edges Subscriber Letter turned 2 a few days ago.

Since the Letter began 2 years ago it has undergone a huge amount of improvement- much of it driven by subscribers.

In the beginning the Subscriber Letter was not accompanied by a website. While I’ve made several changes to the format of the letter, the biggest changes have come in the form of website functionality. Some of the major improvements over the last 2 years include (but are not limited to):

1) 2008 – The Charts page which tracks a fair amount of indicators discussed in some of the studies – several of which are unique to Quantifiable Edges.

2) 2008 – The Systems page with numbered systems. Originally when I had a system that would trigger a signal in a stock or ETF I would just publish the rules in that night’s Letter. Subscribers wanted a database of the published systems along with their rules. I also threw in Tradestation code for any Tradestation subscribers.

3) 2008 – The triggers spreadsheet. Shortly after the Systems Page was created I decided to create a spreadsheet that showed any S&P 500 stock or liquid ETF (non-inverse, non-leveraged) that triggered one of the systems that day. This spreadsheet is updated each night and is a frequent source of trading ideas for many subscribers.

4) 2009 – The Archives. The archives pages allow subscribers to pull up any subscriber letter back to the 1st one on 2/25/08 and see what was written. This came in handy for subscribers who felt the current environment was similar to one I had discussed previously and wanted to see what I’d written then.

5) 2009 – The Quantifinder. With this addition searching the archives became obsolete. If a study was published that provided an edge and would qualify under the current market conditions, the Quantifinder finds it for you and provides a link right to the publication or blog post.

6) 2009 – The Aggregator System. The intraday version of the Quantifinder made it possible to sort through hundreds of published studies as the market was still trading and anticipate which ones were setting up to trigger. With this information subscribers can now get a nice preview of tonight’s letter even before the market closes. And the Aggregator System semi-automates the index trading principles I’ve discussed since the inception of the Letter and lets subscribers trade on that nights research information before the market even closes for the day. Over the 2 year period of the Subscriber Letter the Aggregator System has returned a hypothetical 122% on the SPX.

7) 2010 – The QE Aggressive NDX Trend Timer – Released February 1st this system uses trend, momentum, and relative strength to trade the NDX. I’ll post more details in an upcoming post, but this system is currently free for all gold subscribers.

These are just the major improvements. There have also been several minor ones along the way. There is always more in the works, and I already have several additional projects in development. And while the gold subscription price will go up someday, at this point it is the same $75/month or $750/yr that it was two years ago without any of the above functionality.

If you haven’t taken a trial in a while, feel free to send an email requesting one to support@ quantifiableedges.com (no spaces) and I’ll set you up with a free week to check out the new functionality.

Now back to your regularly scheduled programming…

Much of the time when the market has had bad days as of late people have pointed to troubles in Greece and Europe as the reason. I decided to isolate the US market a bit to see how much of the selling really could be attributed to Europe’s woes. The top pane of the chart shows closing half-hour readings for the SPY from the market top in the middle of January through Thursday’s close. The bottom pane shows an indicator that measures the movement of the US market from the time Europe is all closed at 11:30 EST until the NYSE closes at 4pm EST.

It has now been 5 trading days since the 2/11 classic Follow Through Day (a gain of 1% or more on higher volume). In the February 1, 2008 blog post I examined implications of market action directly after FTD’s. In that post I found this early action to be a strong indication of whether a FTD was likely to succeed or not. A move higher in the SPX over the 1st 5 days after a FTD led to a successful rally about 2/3 of the time.

In the current situation “success” would be a move to 1,147.41 or higher. This is just barely under the January high of 1,150.45. In other words, based on this study, there appears to be a good chance the market will at least test its January highs before it breaks its February lows. One thing to note is that there still has not been a FTD under the current (1.7% gain) IBD definition, so it will be interesting to see what happens here.

It’s now been a few days since we hit the lows. With a potential bottom in place IBD followers and some other intermediate-term traders are eagerly awaiting a Follow Through Day (FTD) signal to start putting money to work again. FTD’s get a lot of press but they are largely overrated as a predictive indicator and many reports on them from IBD and others are filled with lore rather than facts. Back in 2008 I did a series on FTD’s. I examined many claims about them and quantified them in detail. Traders who would like to learn more about FTD’s or who would like a refresher may want to check out that series starting with the overview at the link below:

https://quantifiableedges.blogspot.com/2008/07/follow-through-days-quantified.html