Friday, January 15, 2010

2 Up Days In A Market Dominated By Upside Momentum

In August of 2008 I wrote about a simple system that looked to take advantage of the choppy market environment by shorting any time SPX closed up 2 days in a row. I tracked the system and used it as an indicator in the subscriber letter from August of 2008 until August of 2009. In August of 2009 it was becoming apparent that the market had shifted from one dominated by chop to one dominated by upside momentum. In last night’s subscriber letter I ran some studies that showed just how dominant short-term momentum has become. Below is one of those studies:

We see here that since the middle of August, 11 of the 12 times the market has gone up 2 days in a row it has managed to follow through with more gains the next day. It’s also shown a profit 2 days later on 11 of 12 occasions. Shorting 2-day upmoves has been an exceptionally poor strategy in this environment. There are at least a couple of ways traders could use this information. 1) They could look for strategies that try and take advantage of this kind of momentum. 2)They could also simply monitor the action of “2 Up Days” going forward to try and get a feel for when momentum may be waning and the environment changing.

If you’d like to see more on my recent short-term momentum study, you may take a free trial of the Quantifiable Edges Subscriber Letter by clicking here (email address required).


Anonymous said...

On January 19th, American society may change as we know it. Either Scott Brown or Martha Coakley will win the Senate race in Mass. If Scott wins, then the healthcare legislation, as well as other legislation, will not go through. This seat is the 60th vote and it would kill the legislation if Scott were elected. WLP and many other healthcare providers would instantly sell off maybe 10-20% or more.

This is the critical event that the market is waiting for, the Black Swan, where we do not know exactly how it will effect the market…

Stock said...

I was pimping out this Fib Fan way back to July 7th, 2009

Now it looks like it is really in play.

Anonymous said...

I am going around to the different blogs and encouraging people to donate either to the Red Cross or the Clinton Bush Haiti Relief Fund. There are many charities out there right now asking for donations, but some may not be putting the money to good use. You should be donating your money to well known names and organizations that have been vetted and approved by an independent agency like the Better Business Bureau.

I strongly suggest that you donate at least $10 to both funds if not more. In the following link, I have provided articles about the various scams out there and links to the Red Cross and Clinton Bush Haiti Relief Fund.

If you can do me a favor and "Tweat" this link out to as many people as possible. I appreciate it.