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.