Tuesday, July 31, 2012

Fed Days on the 1st of the Month

As I mentioned last night, Wednesday is a Fed Day. Fed Days have historically had a bullish inclination. Of course Wednesday is also the first trading day of August. I’ve documented numerous times that since the late 80s the first trading day of the month has had a bullish tendency. So I wondered how the market has performed on days that a Fed Day has coincided with the first trading day of month. There have only been six instances since the late 80s. I've listed them all below.

Early indications suggest a possible upside edge, but really we have too few instances to draw any conclusions without overwhelmingly lopsided results. Still, I thought this was interesting enough to share.

Monday, July 30, 2012

Historical Implications Of Recent Gap Action & A New 50-day High

One potential positive about Friday’s breakout is that it occurred with SPY posting its 2nd unfilled up gap in a row. The study below examines the implications of this.

Day 1 is a toss-up, but after that results appear extremely consistent and suggest an upside edge.

We also have a Fed Day coming up. Fed Days have generally been positive but there is a lot to consider.  For those who want to review Fed Day edges you may use the Fed Day label on the side of the blog.  For those that would like an even more complete discussion, you can check out The Quantifiable Edges Guide to Fed Days.

Thursday, July 26, 2012

When the Nasdaq Declines but the SOX Rallies Strongly

One interesting aspect of Wednesday’s action is that the SOX (Semiconductor Index) did so well, gaining 1.92%, despite the decline in the Nasdaq.  When this has happened in the past, it has often been the SOX that has been “right” – at least with regards to the following day.  This can be seen in the study below.

The Nasdaq has risen the next day 71% of the time and the average net gain has been over 0.8%.   These are impressive numbers that suggest a 1-day upside edge for the Nasdaq.

Tuesday, July 24, 2012

The Edge Suggested By 2 Consecutive Unfilled Down Gaps

One notable aspect of the price action over the last 2 days is that both Friday and Monday posted unfilled gaps down – never reaching breakeven at any point during the day.  Since 1998 occurrences have been followed by a strong propensity to bounce over the next few days.  I broke it down a few different ways in last night's subscriber letter.  But below are the raw results without any additional filtering.

These raw results (whose consistency can be improved by filtering on current market conditions) are still impressive when looking out 1 week.  The pattern of multiple gaps down appears to suggest a short-term bullish edge and is one worth remembering.

Thursday, July 19, 2012

What Wednesday's Move to a 50-day High Was Missing

One notable is that that SPY closed at a 50-day high today (matching the 7/3/12 close).  I’ve shown in the past that a new 50-day high is often more reliable after a period of consolidation.  In this case it has been more than 10 days since we last saw a 50-day closing high.  But unfortunately there is one ingredient that today’s new high was missing – an unfilled gap up.  The study below is from the Quantifiable Edge Subscriber Letter and it examines the importance of an unfilled upside gap.  Below I show closes at 50-day highs that occurred in conjunction with an unfilled gap (unlike Wednesday).

Results here are strong across the board. Technicians will often use the term “breakaway gap”.  This suggests the gap occurs on the same day as a base breakout.  The idea is that the new high causes excitement and the gap leaves a good amount of people sidelined or stuck short.  When it doesn’t immediately fill, it leads these people to chase and helps to propel the market even higher.

Now let’s look at instances where the 50-day high breakout was not accompanied by an unfilled gap.  Interestingly, the number of instances was exactly the same.

As you can see these moves to new highs that don’t start with an unfilled gap are much less reliable.  Unfortunately for the bull case, this is what happened on Wednesday.  The gap down to start the day may not have seemed like a big deal to most, but it means the odds of immediate follow-through are greatly diminished.

Tuesday, July 17, 2012

Mid-Year Update of QE Subscriber Letter Trade Idea Results

I don't often discuss trade idea results from the subscriber letter here on the blog. The last time I did was in January. 2012 so far has been a very strong year and many subscribers have written to say they’ve benefitted.  The reason I don’t often post results is that while I've always tracked trade ideas in the subscriber letter, it isn't the main focus of the service. I don't consider Quantifiable Edges to be a stock picking service. I consider it one where traders can gain market and trading knowledge through the published research, systems, and tools. The objective is to provide tools and instruction to help traders improve their own trading and results.

But the published trade ideas have done quite well. In fact, only 1 month of the last 21 months have the trade ideas failed to add up to positive gains.  2012 so far has seen positive gains every month.  And the Catapult trades, which make up the CBI, have not had a single losing cluster (or group of trades) in over 3 years.

I don't suggest position sizes, and I would never suggest that the trade ideas represent any kind of complete portfolio strategy. They are what they are - ideas about certain stocks or ETFs that have historically provided a statistical edge.

It is important to note that all of the trade ideas are in either ETFs or in highly liquid large cap stocks (almost exclusively S&P 100 components). I do this so that executing trades and getting fills at reasonable prices is not an issue. I think traders feel the most frustrating aspect of following trade ideas offered by some services is not being able to get into or out of the trades that they suggest at a similar price. I’ve addressed this problem with limit prices and highly liquid securities.

Some of my goals with a gold subscription have always been to help people improve their trading through the use of quantified research, and while doing so to help them offset the costs of the subscription by offering easy-to-execute trade ideas with a long-term positive profit expectancy. To date I believe Quantifiable Edges has succeeded in doing this.

As I did 6 months ago, I have again broken down the results by year.  For tracking purposes I only count trades after they have been closed out. With most trades being of the swing variety this doesn’t normally skew results much. But it does occasionally when a big trades lasts over a month or year-end.
Below are the results by year.

Stats have been strong across the board in 2012, with “% win” and “profit factor” really standing out.  I've become a bit more selective the last year and a half, which has led to a small dip in the number of trade ideas, but has also seemed to help with winning %.

For those that are interested, the complete list of trade ideas from 2008 - present can be downloaded from the systems page of the members’ section of Quantifiable Edges. (Available to paid and trial subscribers.) And with the full archive of subscriber letters available on the site, gold subscribers can also go back and see what I wrote about any trade and my reasons for entry and exit when it happened.

With a subscription to Quantifiable Edges I try and provide traders with ideas and instruction to improve their trading. These ideas may come in the form of previously published studies identified by the Quantifinder, or they may be something I discuss in the current subscriber letter, or perhaps it's a webinar focused on a certain trading approach or indicator, or any other number of tools that I've designed and made available. (For a more complete list of tools, see the "Using Quantifiable Edges" series of posts.) The trade ideas found in the subscriber letter are examples of how I put these tools and ideas to work. While past performance is not necessarily indicative of future results, over the long run they’ve performed well enough that many subscribers have used them for their benefit.

For more information on a gold subscription, or to subscribe, click here.

Lastly, below is the explanations and disclaimer from the Trade Ideas Results Spreadsheet.

All trade ideas ever tracked in the Quantifiable Edges Subscriber Letter may be found on this spreadsheet. I don’t suggest position sizes. The primary reason for this is I’m not acting as a financial advisor. I don’t feel it is appropriate to suggest allocation sizes without understanding someone’s financial situation and risk tolerance. Even for my own trading I run different portfolios with different levels of aggressiveness. For instance, my most aggressive may use options to sometimes get 300-400% leveraged. Other portfolios on the other hand normally take much more conservative stances and some rarely reach or exceed 100% exposure.

Since I don’t suggest position sizes this is should not be considered a performance report, but rather a trade idea scorecard. Therefore, no matter how objective I try to be the reporting of the results is always going to be skewed depending on how you approach the trades. For instance, I always recommend scaling into the Catapult positions in 3 parts, whereas the “System” trades (whatever system I unveil other than Catapult) are normally one entry. The “Index” trades I normally recommend scaling into as well. For my own trading I trade much larger size with the index trades than any of the individuals. I also control my exposure by limiting the total amount invested per day. As I mentioned, this will vary depending on the account I’m trading. My most aggressive account I may put in up to 100%/day and get heavily leveraged using options. A more conservative account may max out at 15%-20% per day.

It’s unlikely anyone would have taken all of the trades with equal amounts, so personal results would vary greatly depending on the trader’s approach. Simply adding up the results of the individual triggers as I do is an admittedly poor representation of returns. A net positive or negative does not necessarily mean a person following the ideas would have made or lost money during the period measured. And the sum total is certainly not representative of what a portfolio would return. 

Feel free to contact me at support @ QuantifiableEdges.com if you have any questions.

As required by the NFA: Except where otherwise specifically stated, all trades are based on hypothetical or simulated trading. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not actually been executed, the results may have under-or-over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Commissions, fees, and slippage have not been included. This is neither a solicitation to buy/sell securities or listed options.

Friday, July 13, 2012

6 Days Down & CBI Still 0

This morning on Tyler's Trading he noted the mild reaction the VIX has had during this 6-day selloff.  He notes it's an odd situation but not one that is clearly predictable.

A measure of fear that I use here is the Quantifiable Edges Capitulative Breadth Indicator (CBI).  The CBI looks for capitulative selling among S&P 100 stocks.  During market pullbacks it is common to see the CBI rise.  Very strong pullbacks will see higher readings, and as I have discussed many time before, readings of 10 or higher generally suggest a bounce is very near.  But with the market down 6 days in a row the CBI is still at 0.

I looked back at other times the SPX closed down 6 days in a row.  There have only been 3 of them, which is just another example of how odd recent market action has been.  The other occurrences took place on 3/2/99, 8/1/11, and 11/23/11.  With only 3 instances it would be dangerous to try and draw a conclusion about the meaning, but the instances couldn't be much different anyway.  The '99 instance was quickly followed by solid gains.  The 8/11 instance was followed by a massive selloff that only ended after the CBI did spike, and the 11/11 instance was immediately followed by a very sharp rally.

Not everything I look at is predictive, but that doesn't mean it is useless information.  While much of what I have been seeing suggests a bounce, knowing how unusual the setup is alerts you that the market is capable of just about anything, and the CBI example demonstrates that.

Tuesday, July 10, 2012

Odds of a Turnaround Tuesday

I've discussed many times in the past that Tuesdays have a well-earned reputation for being a day when the market will often halt a decline.  The study below is one from the larger Turnaround Tuesday study.  It was last published in the 1/31/12 blog. All statistics are updated.

As you can see the market has strongly favored a quick move higher.  And when that move hasn’t happened on Tuesday it has often happened in the next few days.

Saturday, July 7, 2012

Big Time Swing System Results Updated for 1st Half 2012

I’ve updated the Quantifiable Edges Big Time Swing System overview page with results through July 2nd when the most recent trade closed out. There is not a trade currently open. Since the system only averages about 1 trade per month, I typically update the results bi-annually. The 1st half of 2012 produced a net return of 2.6% for SPY (including dividends, commissions of $0.01/share, and an assumed interest rate on cash of 0.1%).  This was achieved with 1 short trade and 4 long trades.  Four of the five trades made money.

For those looking for a system that they can use as a base to build their own system from, the Big Time Swing is an attractive option. It is all open-coded and comes complete with a substantial amount of background historical research. And since it is only in the market about ¼ of the time, it can easily be combined with other systems to provide greater efficiency of capital. Once you’re ready to try and improve the system yourself you can also refer to the system manual or the August 2010 purchaser-only webinar – both of which discuss numerous ideas for customization.

And if system development isn’t your thing, the Big Time Swing System provides easy to follow mechanical rules that you can follow. The standard parameters have performed quite well. There are only about 11 trades per year averaging 7 trading days per trade. All entries and exits are either at the open or the close. And to be sure you have everything set up properly traders may follow the private-purchasers only blog that shows all SPY signals and possible entry/exit levels. This service is free for 12 months from the date of purchase.

For more information and to see the updated overview sheet, click here.

If you’d like additional information about the system, or have questions, you may email BigTimeSwing @ Quantifiable Edges.com (no spaces).

Thursday, July 5, 2012

Late-Day Optimism Getting Overdone

Despite the strong move higher over the last several days, the market has been consistently producing bullish studies.  At Tuesday’s close I noted the first bearish study to trigger in a while (using the Quantifinder).  It is an interesting one so I thought I would share it on the blog.

The market has seen a lot of strong finishes lately.  When it consistently closes near the high of the day it suggests optimism on the part of traders. This 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 exemplifies this concept.

Downside risk appears to be reaching a level that the market will often experience a brief pullback.  But 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.