Friday Before Labor Day Seasonally Strong

The Friday before Labor Day has long been a strong seasonal day for the market.  Below is a stats table based on buying the Thursday before Labor Day and selling the close on Friday.

With 71% of the days finishing higher, a profit factor of over 2.5, and an average trade of 0.3% the stats are quite compelling.  Futures are up pretty strong right now, so this one has a head start.  But gold subscribers were alerted to this in yesterday afternoon's Quantifinder, and Overnight Traders were also made aware of the strong seasonality yesterday afternoon.

Revisiting Strong Breadth on Down Days

Despite the SPX closing lower yesterday, the NYSE saw 56% of its issues close higher.  This brought about a study that I last showed in the 6/29/12 blog.  Results are updated.

The numbers here suggest an upside edge.  While not extremely powerful, it does appear to be nicely consistent over the first few days.

Facebook Me!

So it is probably 3 or 4 years beyond when I should have done this, but Quantifiable Edges is finally on Facebook! I've set up the page so that all tweets and blogs appear in the timeline.

So for those of you that "like" Quantifiable Edges and would like the tweets and blogs delivered into your newsfeed, you can easily do so.

If you prefer to keep Quantifiable Edges out of your newsfeed, you can still "like" the page and then easily hop over there while in Facebook to check any new activity.

I'm fairly new to all this Facebook stuff, but it seems pretty slick to me, and a nice option for Facebook users to keep up with Quantifiable Edges. I suspect I'll need to have some kind of "like me" contest soon.

And yes, the new Overnight Edges website is also on Facebook.

You may check out the Quantifiable Edges Facebook page here.

The Overnight Edges Facebook page can be found here.

Mega-Outside Days

Friday was what I call a mega-outside day. It didn't just make a higher high and a lower low (a regular outside day). It actually opened below the low of Thursday and closed above the high of Thursday. This is unusual, and in the past it has led to a dip over the next few days.

Stats here look strongly negative over the first 1-2 days, with most of the downside occurring on day 1.

The June 12th FTD was a Success

When SPX hit a new high on Tuesday (Aug 21st), doing so deemed the 6/12/12 Follow-Through Day (FTD) “successful” according to the possible definitions of “success” I included in the FTD studies.

Based on a number of the FTD studies, this one bucked the odds.  For one, it came on moderate volume.  Secondly, breadth was unremarkable.  And lastly, it occurred in June.  It was only the 8th FTD to occur in June since 1971 and only the 2nd one to succeed.

Despite all this, the rally went on to new highs.  That's why I talk about odds and not certainties. This FTD will now be clustered in with the rest and the odds will be recalculated next time one occurs.

When QQQ Posts 2 Outside Days in a Row

Tuesday marked the 2nd day in a row where the QQQ made a lower low and a higher high.  Days that do this are often referred to as “outside days” because they trade outside the range of the previous day.  When QQQ has posted back to back outside days in the past, it has often been followed by a short-term rally.  I last showed this in the 11/10/10 blog.  I posted a link to that blog via Twitter yesterday afternoon.  I have updated the stats table below.

Results still appear strongly positive.

Consistent Closes Near the Top of the Daily Range - And What That Could Fortell

The market has seen a lot of finishes near the top of its daily range lately.  When the market consistently closes near the high of the day it suggests optimism on the part of traders. This end-of-day optimism is now at a level that suggests it is a bit overdone and there is a good chance of a pullback. The study below was last seen in the 7/5/12 blog and it exemplifies this concept. I have updated all of the statistics.

While the downside edge appears to remain in place for a full week, most of the edge has been realized over the 1st 2 days.

Note: To calculate the “8-day Average Closing % Range” I am simply measuring where in the daily range SPY closed each day. For instance if it traded at a low of $141.00 and a high of $142.00 and closed at $141.75, then it would have closed in the 75th percentile of the daily range. A close at $141.50 would have meant 50%.

I then take a simple moving average of the last 8 days. If that average goes from below 75% (where it usually is) to above 75%, the study is triggered.

Quantifiable Edges new baby - Overnight Edges

I can't tell you how excited I am to announce the launch of Overnight Edges. Overnight trading is something I've spent years studying, implementing, and refining.  I've kept quiet about it for far too long.  Now I’m finally ready to share it with the world!  I’ll write more on it in the near future, but today I just wanted to formally announce that Overnight Edges is LIVE!  Check it out at

http://overnightedges.com

What to do when you have no edge

Motionless markets like we’ve been in lately can be a real test of patience.  Michael Covel posted a great clip from Boardwalk Empire recently that talks about the importance of patience when you have no substantial edge.  Hat tip to Charles Kirk for making me aware of it.  (There is some foul language in the clip.)

http://www.michaelcovel.com/2012/08/06/the-definition-of-an-asymmetric-bet/

Is The Recent Consolidation Bullish?

The range over the last week has been extremely tight.  Every SPY close in the 5 days since 8/7 has been within the daily range of that 8/7/12 bar.  It is said that consolidations are often resolved in the direction of the trend.  This guideline suggests that we’re more likely to see another leg up from here than a breakdown.  The study below puts this to the test.

It certainly appears the old technical adage has some merit.  Results favor the long side over the immediate 3-day period and they are even more impressive when looking out 8 to 10 days.

Why The Recent Move Higher May Signal More Gains

One possible market positive is that prior to small drop Monday's drop the SPX was locked in a persistent rally. I've shown a few different ways in the past that persistent rallies are unlikely to end abruptly. Instead they will either continue higher after a brief pullback, or action will become choppy prior to a sizable move lower. This is shown in the study below.

We see here a decent edge that becomes stronger and more consistent as you look out over the next several days.  The 9-10 day time frame shows exceptional stats.  The 2-day timeframe suggests a quick little boost is also likely.

Implications of 10-yr Bond Rates Hitting New 50-day Highs Along With SPX

Ten year bond rates hit a new 50-day high on Thursday in conjunction with the 50-day high in the SPX.  This is something I have looked at in the past, and the intermediate-term implications suggest possible difficulty.  I’ve shown this study a few times on the blog, most recently last October 31st.  The last time it triggered was March 13th.  I have updated the results below.

Generally it seems that higher interest rates have often made bonds an attractive investment. This may have lead people to forsake stocks in favor of lower risk returns with improved yield.  Of course the “high” yield we are now seeing certainly does not seem high.  Still, this study has triggered a number of times over the last several years and it continues to suggest struggles for the SPX.  So it seems worth being aware of.

A Bullish Study That is Re-Triggering

I mentioned yesterday that I am seeing a real mix of studies, and that remains true.  So after showing one for the bears yesterday, let’s look at a bullish one today.  You’ll hopefully recognize it because it last triggered just over a week ago.  I showed it in the July 30th blog and have updated the results below.

The last instance was followed by a 4-day pullback and then a very large rally on day 5 that wiped out all the losses.  Results have consistently led to at least some upside over the short-term.

There remain both positives (like today’s study) and negatives (like yesterday’s) to take into account.  Perhaps a little caution is warranted.

A Gap Pattern Suggesting A Pullback

I am seeing a real mix of studies right now.  The one below makes a short-term argument for the bears.  It examines the unfilled gap pattern that emerged in the SPY on Friday.   The study was last shown in the 10/28/11 subscriber letter. I ran it again this weekend.

The number of instances is a bit low, but the consistency is strong enough and the statistics lopsided enough that I think it is still worth taking the study under consideration.

Recent Blogroll Additions

While I have made some recent additions to the blogroll, I have neglected to mention them on the blog.  So I thought I would do so quickly, since they all deserve to be pointed out.

The Whole Street’s Quant Mashup

http://www.thewholestreet.com/quants/

This is a fairly new site, but they have put together a nice list of quant-oriented blogs.  Several can be found on my blogroll, but there were a few that I had never even heard of.  So I have some more exploring to do with some of these.

The McVerry Report

http://mcverryreport.com/

Joe McVerry has put together quite a list of blogs that can easily be scanned for ideas.

Rogue Traderette

http://www.roguetraderette.com/

Jess muses about trading.  She’s open, honest and interesting.  A good read.

Cold Hard Football Facts

http://www.coldhardfootballfacts.com/

NFL preseason is set to begin.  Kerry Byrne is an old college friend and he runs the only football “quant” site I know.  He doesn’t just argue about who’s better.  He builds entire stats-based cases.  Right up my alley.

Smallcap Underperformance Exhuasting Itself?

Smallcap action has been poor lately.  Typically you would like to see smallcaps offering upside leadership during a rally.  They certainly have not been doing that.  Wednesday’s smallcap underperformance was quite outsized and I decided to look at other pullback scenarios where the RUT underperformed so badly.  I devised the following study.

Instances are very low, which makes it difficult to generate meaningful expectations.  But somewhat surprisingly results could not be any more bullish.  When I looked at the individual instances I noted that four of the six registered 2%+ gains over the next 3 days.  Perhaps the smallcap downdraft is exhausting itself and the market can manage to rally as it has in the past.