In the past I’ve discussed how extremely low SPY volume is often a bearish indication. Below is an updated version of a study I posted nearly a year ago on 4/22/08.
While the edge here is not the strongest in terms of % or magnitude it has been consistent over time. Below is an equity graph of the 5-day exit that was highlighted in yellow above.
6 comments:
Rob, what is your feeling on using the volume reports for the SPX vs. the SPY?
Thanks!
This is consistent with the fact that the major index ETFs are shorting/hedging vehicles for lots of traders. Volume on these is a sentiment indicator (low volume = low pessimism), and spikes in SPY/$SPX volume coincide with market stress.
Woodshedder,
Either one can help to provide an edge. I look at both. It's not a case where you need to choose one way to look at it and only use that.
Toptick,
Good comment.
toptick - like the comment. Have you any other interesting / unusual sentiment indicators othe than the obvious ones like VIX, VXO CPC etc.
everyone - I think we are at a major top. Run for your lives!
Rob,
an excellent study, but the respective results would show a (partly very) different picture (and significantly more indicative) if you'd additionally differentiate between those occurrences on a rising 10-day SMA (SPY) and those on a declining 10-day SMA (today's 10-day SMA of SPY > Yesterday's 10-day SMA of SPY).
Since, 05/03/1993, those occurrences on a rising 10-day SMA show an at least comparable, but over the course of 10 days on 8 days (!) a slightly better than random (means at-any-time) profit factor, and from day 6 onward a significantly better than random profit factor.
Those occurrences on a falling 10-day SMA show a disastrous profit factor over the course of ALL 10 days, regularly between 0.10 and 0.40 (which leads -if the results concerning rising and falling 10-day SMAs are averaged- to a slightly negative bias).
So 'on average' this survey would indicate a limited upside potential over the course of the next couple of sessions, but with respect to the fact that we currently experience a rising SPY 10-day SMA, chances are at least random (if not better) for a higher SPY over the next couple of sessions.
The dominating factor is the rising or falling SPY 10-day Simple Moving Average (SMA).
Best regards
Frank
http://tradingtheodds.wordpress.com
Excellent point, Frank.
Rob, I hope you will take this into account in future posts (i.e. slope of 10-day SMA of SPY).
Both of you guys are awesome.
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