Tuesday, November 25, 2008

Introducing Volume Spyx

Over the Summer I developed a volume-based indicator that I decided to call Volume Spyx. I have been watching it closely ever since and have posted several studies to the subscriber letters associated with Volume Spyx. Essentially, it looks at an array of securities and compares their volume. Spyx readings are calculated for the NYSE (and compared to the S&P 500) and for the Nasdaq. I primarily use it on daily charts, but weekly have also tested well, and there even seems to be some edge using intraday bars. What I found is that in general, high Volume Spyx readings suggest a bullish bias and low Volume Spyx readings suggest underperformance or a bearish bias.

Below is a table taken from the S&P 500 Spyx Volume 1 document (Volume 2 should be out shortly). The document is 6 pages long and details market statistics related to Spyx levels. The document is available in the Quantifiable Edges Charts page. To access the charts pages you must be a subscriber, but trial memberships are available with just a name and email address. (Click here to sign up.) The table below looks at the period 1/1/1994 - 6/30/2008.


While volume Spyx can be used to help establish a trading bias on its own, Spyx tend to show larger edges when used in conjunction with price movement or other indicators. Below is a study from last night’s Subscriber Letter which demonstrates how I might use Volume Spyx in my analysis.

Low levels of Volume Spyx have typically led to market underperformance. This is especially true when they occur on an up day. There have only been 2 instances where the S&P 500 Volume Spyx has come in under 40 and the market has gained 5%. Therefore I loosened the parameters to a 3% gain.


Still the number of instances is low, but a low Volume Spyx combined with a price spike higher has been a bad combination. Below are the 7 instances and their 2-day returns:



I will be pointing out unusual Spyx activity and what it may suggest as instances arise. I’ve also decided that at least through the end of the year I will post the chart of the S&P 500 Volume Spyx on the Quantifiable Edges home page for all to see.

3 comments:

Anonymous said...

So if I read this right, after looking at the chart on the home page, the probability is that Wednesday 11/26 is a down day.

Not asking for a forecast, just a check on my understanding.

Bill said...

Is this indicator available for purchase using Tradestation Rob?

Rob Hanna said...

Anon -

Yes...sort of. The probability of a day following a reading of 30 or lower being DOWN was about 49% over the test period. The bearish inclination came more from the fact that losers outsized winners. It's difficult to see with just this one table. I'll show more over time.

Bill -

No, but a historical data file is available each night for the daily Spyx. Tradestation users could import it in for testing/evaluation/system design. It currently only comes with the Gold Level Subscription

Rob