Wednesday, February 4, 2009

Low Volume Spyx Reading On Strong Up Day Historically Bearish

The Quantifiable Edges Volume Spyx indicator came in at a very low 15 reading on Tuesday. In general, very low readings have been bearish while very high readings have been bullish. (For those who are new to the volume Spyx indicator, click here for the introductory post on it.) Below is a study showing returns following all instances where the S&P rose at least 1.25% and the Spyx finished below 25.
(click on table to enlarge)

Most of the bearish tendency plays out within the first 4 days. As a baseline, over the same period the average 4-day return of the S&P 500 following a 1.25% gain with a Spyx reading ABOVE 25 is almost dead even at -$0.13. This is substantially higher than the average -$840.66 decline shown in the study.
An S&P chart with the volume Spyx indicator is updated each night on the Quantifiable Edges Home Page.


Kosta said...

Nice study, looks like a short would be appropriate. Today's an upday (so far). Any chance of breaking down the results after having the first day be an up day?

Anonymous said...


again an interesting study, but if you'd break down these figures into time frames (e.g. last three month, last year, last 5 years and so on) in order to check if the setup works especially well in bear and/or bull markets and compare the figures with the at-any-time odds for a higher/lower close x days later, you'd come up with the following interesting finding:

Since 02/01/2008 buying the SPX on close of a day when the SPX closed up at least 1.25%, the odds for a higher close 4 days later are only 31.48% (17 out of 37 occurrences) WITHOUT taking any kind of volume into account (due to the contrarian tendency of the market for at least a year now). Since 02/01/2008 the at-any-time odds for a higher close four days later would be 43.91% (without any kind of setup, investing on any day)

So a low SPY volume figure with associated odds of 39.47% for a higher close 4 days later (investing after a higher close of at least 1.25 in the SPX) would -concerning this time frame and setup- in fact INCREASE the odds for a higher close 4 day later (and not lower them) in opposite to the long term findings in your study. The long time frame of the study (almost 15 years) might cloud the view for the current environment and odds.

Concerning the long term odds (since 1995) I completely agree, but the 90th and early years of this decade might not be comparable to the current environment.

Best regards, and it is always a pleasure to read your blog.