An Updated Look At Op-Ex Week Returns By Month

There is a possible seasonal influence that could have a bullish impact on the market this week. Op-ex week in general is pretty bullish. March, April, October, and December it has been especially so. S&P 500 options began trading in mid-1983. The table below is one I have showed on the blog the last few years in March. It goes back to 1984 and shows op-ex week performance broken down by month. All statistics are updated.

While December has been more reliable, total gains have been the largest during April and then March op-ex.

Book Review - Mean Reversion Trading Systems by Howard Bandy

I am just about finished with Howard Bandy’s new book, “MeanReversion Trading Systems – Practical Methods for Swing Trading”.  While I very rarely review books here on Quantifiable Edges, this one really stands out and deserves some attention.

Howard goes through every step of the systems-building process.  He examines several different oscillators.  He scrutinizes entry & exits techniques.  He discusses risk control.  And on top of it all, he provides code for everything he covers in the book.  It is $50 for the book, which is a ridiculously low price.  There are trading courses that cost many thousands of dollars that don’t provide as much good information as Howard’s “Mean Reversion Trading Systems”.  All of the coding is done in Amibroker, which unfortunately I do not use.  But since he lists it all out, those who use other programs like me can translate it into Tradestation, R, or whatever.  And here is the kicker for anyone that does use Amibroker – Howard has actually set up a web page where book purchasers can download the code at no additional cost.

I commend Howard on his efforts.  If you have an interest in developing your own trading systems, this book is a wonderful resource that I would highly recommend.

What The Recent Consolidation Hints At

After the big reversal down last Monday the market has recovered quite a bit.  What is interesting though is that it has closed within the range of that 1 bar every day for the last week.  The bears failed to follow through on that selloff, but the bulls have not managed to move the SPX back out of the range either.  This triggered the study below, which I last discussed a couple of years ago.

Over the last 24 years or so the SPX has burst higher out of this “failed selloff” and consolidation on a fairly consistent basis.  But the implications are only bullish for a few short days.  After that there does not appear to be a decided edge for either the bulls or the bears.  I have a bit of a concern, though.  Technically, the current setup does qualify.  But the last 5 days have been a fairly nice rally.  SPX just barely has missed breaking out of the range, and it has not “felt” like a 5-day consolidation.  So while the study suggests a likely pop higher in the next few days, the likelihood may not be quite as strong as suggested.

The Quantifiable Edges Study of Tops

A while back I did a study of major market tops for Quantifiable Edges Gold & Silver subscribers. The study goes back to 1970 and considers every SPX top that was followed by a decline of at least 20%. I identified two indicators that I found especially useful in determining when conditions may be ripe for a possible top. I recently updated the QE Study of Tops, and received a lot of positive feedback on it. A primary reason that I was inspired to update the study is that one of the indicators is currently flashing a warning sign. So I decided I would also make the study available to non-subscribers for a small fee.

The Study of Tops can now be purchased on the Quantifiable Edges website for $5.99. If you purchase a Quantifiable Edges subscription within two weeks of your Study of Tops purchase, your $5.99 will be refunded. 

I certainly hope everyone finds it interesting and valuable. If you purchase it and don't feel it was worth the $5.99, then simply send me a note explaining why (relatively nicely), and I will refund your money.

Lastly, I also included a coupon (good through March 31) for a free trial of any Overnight Edges subscription as part of the Study of Tops.

You may purchase the Quantifiable Edges Study of Tops by clicking here.

A Failure of Bulls Followed by a Failure of Bears

On Monday the bulls tried to make a move higher and failed, making for a higher high and a lower close.  On Tuesday the opposite happened with a lower low and a higher close signifying a failure by the bears.  This action triggered the below study in the Quantifinder.  It was last seen in the 3/3/11 Subscriber Letter.  I have updated the results.

Odds across the board, from Win % to Win/Loss Ratio and Profit Factor are all impressive, and suggestive of a short-term upside edge.

What Follows Huge 1-Day VIX Spikes

Monday saw some unusually strong action.  One index that showed a real extreme move was the VIX.  It spiked up 34% as fear struck options traders.  In the past I have shown how 1-day spikes of 20% or greater have generally suggested an upside edge.  I’ve rerun that study tonight.  I did also look at moves of greater than 25% and 30%, but that did little to change the odds and just made instances fewer.  So I simply stuck with the old 20% parameter for the study below.

Next day stats suggest a solid upside tendency.  I would also note that the size of both the “Avg Winning” and “Avg Losing” trading is quite large for a 1-day move.  So regardless of whether the market moves higher or lower, we could see some strong action today.

Relatively Sharp 2-Day Drops From 50-Day Highs

I am starting to see more evidence pointing towards a bounce.  The pullback over the last couple of days, while not large based on historical standards, has been relatively sharp compared to recent action.  Relatively sharp pullbacks from intermediate-term highs have had a tendency to bounce over years.  This is exemplified in the study below.

The stats all suggest an upside edge over the next 1-4 days.