An Intermediate-Term Breadth Signal That Triggered on Friday

Friday was the 2nd 90% Up Volume day within 5 days.  In the past this has been a bullish indication for the intermediate-term.  Below is an updated results table from the 10/11/11 Subscriber Letter study that showed this.

While the market appears overdone short-term, the breadth thrust we saw last week appears to be a positive sign for the intermediate-term.

A Long-Term Look At Wednesday Before Thanksgiving

Thanksgiving has typically shown some pretty consistent seasonality.  Both the Wednesday before and the Friday after have exhibited bullish tendencies while the Monday after has been slightly bearish.  A couple of years ago I showed a table breaking it all down by day.  Today I decided to show a profit curve that represents simply owning the SPX from Tuesday's close through Wednesday's close.

Looks pretty good to me.  Happy Thanksgiving!

Intermediate-term Implications of the CBI Hitting 11 on Friday

I’ve written an awful lot about the Quantifiable Edges Capitulative Breadth Indicator (CBI) here on the blog.  The CBI moved up from 9 to 11 on Friday.  Many readers are aware that a reading of 10 or higher has been a strong short-term bullish signal over the years.  But I have not discussed intermediate-term implications of high readings before, except in the Subscriber Letter.  Below is a study from last night’s Letter with results of buying the SPX when the CBI reaches 11 or higher and then selling 20 days later.

As you can see, SPX has been a perfect 19-0 when looking out 20 days from the first CBI reading of 11+.  Drawdown stats are larger than most traders would prefer.  Still, it appears a reading of this magnitude often suggests a washout is in progress that should set the stage for at least a multi-week bounce.  We may not reach the “final” bottom here, but this study indicates we should see at least a temporary bottom form soon.

What the Recent String of Poor Closes Could Mean for Today

Where the market closes within its daily range can be an indicator of sentiment.  Over the years I have shown studies indicating persistent closes in one direction often lead to a reversion. An example of overly-optimistic closes was shown in the July 5, 2012 blog post. We are now seeing a setup suggesting excessive pessimism. Tuesday was the fifth day in a row that SPY closed in the lower half of its daily range. The study below was shown in the 12/20/11 subscriber letter (and again last night).  It examines 1-day returns following similar strings of poor closes.

The numbers here appear to be strongly compelling and indicate a possible upside edge for Wednesday.

Also, a reminder to readers that I will be speaking at the Las Vegas Traders Expo on Saturday.  In my talk I will be sharing a lot of my favorite overnight research.  I look forward to meeting several of you!

The Strongly Bearish Signal That (Barely) Triggered Monday

Bad breadth on an up day is something that has been shown to lead to bearish inclinations in the past.  On Monday, according to my data provider, the SPX closed up while the NYSE Up Volume % came in at 44.7%.  This triggered the below study, which I last showed way back on 3/31/10 in the Subscriber Letter.  I have updated the results.

As you can see the numbers are strongly bearish.  But there are some caveats to consider today.  SPX barely closed below its 200ma.  It also barely closed positive on Monday.  And the NYSE Up Volume % was only barely below 45%.  Therefore, while all of the criteria were met to trigger the study, the fact that they were just barley met suggests Monday's setup is not typical of the rest of the sample.  So the reaction may not be typical either.  Still, the fact that it did trigger suggests a move lower is possible and bulls should be on the alert.

A Long-Term Look At Veterans Day

Veterans Day is one of the few US holidays when the bond market is closed and the stock market is open. Columbus Day is another. But while Columbus Day has exhibited some quantifiable edges, Veterans Day has not.  (At least none that I have identified and feel confident about.)  Veterans Day is celebrated on November 11th (or the closest weekday to November 11th) each year. For a brief period from 1971 – 1977 it was celebrated on the 4th Monday of October. Below is a profit curve that shows how Veterans Day has performed over the years.

While for a good long while it appeared Veterans Day may provide an upside edge, the curve topped out in 1992. Since then it has been mostly lower. Happy Veterans Day and thanks to all veterans!

My New Interview With "Your Trading Edge" Magazine

Ben Power interviewed me for YTE magazine.  It just hit newsstands.  And it’s a cover story!  You can pick up a copy, or read it online.

How Has The Market Performed After Election Day?

Happy Election Day!  (Or is it Merry Election Day?)  Here is one view of how the SPX has fared following US elections from 1964 – 2008.

There is not a lot to glean from this.  But I would point out a couple of things.  1) Much of the negative total returns came thanks to the “Max Losing Trade”, which was 2008. 2) The “Max Winning Trade” over the next week is barely 3%.  So the election has not in years past served as a spark that led to a sharp rally.

Employment Days Just Ain't What They Used To Be

Employment days have an interesting history and they have contributed to some worthwhile studies over the years.  By “Employment Day” I mean days that the Federal Employment Report will be released.  This occurs once per month and is normally on the 1st Friday of the month. Below is a chart of SPY performance on Employment Days during bull market environments.  Each trade was a fictional $100k.

What I find so interesting about the chart is that for a long time Employment Days in uptrends showed a strong propensity for gains.  But in 2000 this edge vanished.  Since then there has been no apparent advantage – bullish or bearish.  While it’s unusual to see such an abrupt change in market dynamics, it does serve as a nice reminder that such changes are always possible.