Scott Andrews of “Master the Gap” will be conducting a webinar on Tuesday April 13th at 4:30pm EST that is especially designed for readers of Quantifiable Edges. Scott and I became acquainted within the last year and found it interesting that we utilize very similar approaches for trading very different time frames. While much of the focus with Quantifiable Edges is on swing trading with some discussion of day and intermediate-term edges, Scott uses his quantitative research primarily to trade the opening gaps. His service also covers some other daytrading approaches for times when gap trades are not active.

We’ve had several discussions about how our research tends to be quite complimentary and on a whole can often provide a greater edge for those who may look to incorporate it. Scott’s webinar will show how his gap-focused research can possibly aid traders who are typically more swing-oriented (like me). You may use the link below to see more information on the webinar and to sign up. (It’s free.) If you trade intraday and like the quantitative approach used at Quantifiable Edges, then there’s a good chance you’ll find the webinar interesting.

https://www.masterthegap.com/public/mgcal.cfm?calID=1&caldate=4/13/2010

I’m excited to be speaking with Charles Kirk and his readers today at noon EST. Some of the focus of what we’ll be discussing will be system trading, including some of the systems available here at Quantifiable Edges. If you’d like to attend and perhaps ask some questions then please come by.

https://kirkreport.com/tkr/ScQB

The session will also be archived and I’ll provide a link after it’s all done.

The Fed will be holding a special meeting today that was just announced last week. (Hat tip Market Rewind.) Below is a link to the announcement.

https://www.federalreserve.gov/boarddocs/meetings/2010/20100405/advancedexp.htm

I’ve published a substantial number of studies related to Fed Days and the action that takes place following them. Most of the studies I’ve published have only looked at scheduled Fed meetings.

Unscheduled Fed meetings have been typically been surprises where the announcement came out of the blue – and the time of day was not consistent. Monday is the first unscheduled Fed meeting that I can recall that has been announced beforehand. While behavior may fall in line with other scheduled Fed meetings, I believe it would be dangerous to make any assumptions in this unique case.

Traders should be aware that news will likely hit in the afternoon that may affect the market.

I’ve noted before how extremely low volume during an upmove can lead to a pullback. Below is a study the Quantifinder identified from the 11/16/09 weekly subscriber letter.

Implications seems to be that there is a downside edge over the next few days – especially days 1 and 2. Below is an equity curve using a 2-day exit strategy.

Today is a Fed Day. I’ve shown in the past how Fed Days have had a substantial upside bias. This was illustrated most clearly in my September 23, 2009 post showing a chart of all Fed Days. Of course at this point in time the market is strongly overbought. For those wondering whether this negatively impacts the chances of a positive Fed Day, it doesn’t appear to based on this post from March 18, 2009.

With trading conditions likely to be slow mid-day as the announcement approaches, traders may want to review some of my other Fed Day studies as well.

I’d also like to point out some recent work by others on the subject. This past Friday Tom McClellan reproduced my September 23rd Fed Day chart for his “Chart In Focus” and added his own observations and commentary. Tom’s chart actually went back a bit further than mine and he breaks it down by fed chairman, which I found interesting. You can see Tom’s take on it here:

https://www.mcoscillator.com/learning_center/weekly_chart/fomc_announcement_days_tend_to_close_up/

And last night in his “Gap Wrap” video, Scott Andrews of Master the Gap showed some interesting research that discussed the probabilities associated with gaps filling on Fed Days. He showed both gaps up and gaps down statistics, and the results were quite interesting. You may view his video here:

https://www.masterthegap.com/public/410.cfm

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.