Below are all the instances found:
(produced with Tradestation)
Looks to be a decent chance of a move down from the open today.
(produced with Tradestation)
Looks to be a decent chance of a move down from the open today.
Thursday, April 30, 2009
Gaps Up From 10-day Highs
The SPY is set to gap higher this morning after closing at a 10-day high yesterday. Below are the stats when buying $100k of SPY at 9:31 the morning when SPY closes at a 10-day high and then gaps up at least 0.75%. The trade is then exited at the 4pm close (2001-present):
Wednesday, April 29, 2009
More Nasdaq Weekly Volme Spyx
Yesterday I looked at the extremely low reading the Quantifiable Edges Nasdaq Volume Spyx indicator put in during the week of April17th. After posting a reading below 0 did it again the week of the 24th. Below is an updated weekly chart of the Nasdaq Spyx ending on the 24th.
Going back to 2000 (as far as Nasdaq Spyx data has been calculated) there has only been one other time the market had back to back readings below 0. That was the week ending 11/29/02, which came 7 weeks after the October 2002 bottom. It marked the top of that rally. From there it pulled back for over 3 months before the March 2003 rally and new bull market began. Similarly, we are now about 7 weeks off of the March bottom.
Another instance that came close to a back to back sub-zero reading was December of 2008. What followed that was obviously quite bearish over the next few months.
There have only been 4 instances where the Nasdaq Spyx has posted a sub-zero weekly reading and then the Nasdaq has risen the next week. Those four instances along with their 8-week returns are listed below.
The “best” result above was the 12/04 – 1/05 period where the Nasdaq “only” lost 5%.
Sample sizes for these tests and yesterday’s are too small to read much into. It would be dangerous to draw conclusions from so few instances. Still, with such lopsided intermediate-term results its worth taking note. While the week is only 2 days old, the indicator has yet to rise as of Tuesday’s close.
Volume indicators aren’t the only ones reaching extremes. I noted last week breadth was more overdone by at least one measure than it’s been in decades. While price hasn’t yet begun to roll over the rate of ascension has certainly been slowed. The S&P hasn’t hit a new high in 7 trading days. This is the 1st consolidation of more than 4 days since the March lows. Are we setting up for a pullback or consolidation of several weeks? I don’t know. I am seeing some warning signs that would suggest caution. I’ll be keeping my eye out for more of them, as well.
Going back to 2000 (as far as Nasdaq Spyx data has been calculated) there has only been one other time the market had back to back readings below 0. That was the week ending 11/29/02, which came 7 weeks after the October 2002 bottom. It marked the top of that rally. From there it pulled back for over 3 months before the March 2003 rally and new bull market began. Similarly, we are now about 7 weeks off of the March bottom.
Another instance that came close to a back to back sub-zero reading was December of 2008. What followed that was obviously quite bearish over the next few months.
There have only been 4 instances where the Nasdaq Spyx has posted a sub-zero weekly reading and then the Nasdaq has risen the next week. Those four instances along with their 8-week returns are listed below.
The “best” result above was the 12/04 – 1/05 period where the Nasdaq “only” lost 5%.
Sample sizes for these tests and yesterday’s are too small to read much into. It would be dangerous to draw conclusions from so few instances. Still, with such lopsided intermediate-term results its worth taking note. While the week is only 2 days old, the indicator has yet to rise as of Tuesday’s close.
Volume indicators aren’t the only ones reaching extremes. I noted last week breadth was more overdone by at least one measure than it’s been in decades. While price hasn’t yet begun to roll over the rate of ascension has certainly been slowed. The S&P hasn’t hit a new high in 7 trading days. This is the 1st consolidation of more than 4 days since the March lows. Are we setting up for a pullback or consolidation of several weeks? I don’t know. I am seeing some warning signs that would suggest caution. I’ll be keeping my eye out for more of them, as well.
Tuesday, April 28, 2009
Nasdaq Volume Spyx Weekly Chart Suggesting Trouble
I’ve discussed my Volume Spyx indicators on the blog a fair amount. What I haven’t shown is that Spyx readings can also be useful on weekly charts. The calculations for Spyx readings are proprietary but basically it looks at volume on a relative basis across multiple securities. For the Nasdaq chart it’s looking at Nasdaq securities. As the name would imply, it looks for “spikes” in the relative volume statistics.
Over the past 2 weeks the Nasdaq Volume Spyx weekly chart has been giving readings with potentially bearish ramifications. Below is a chart of the Weekly Nasdaq Spyx as it stood on the weekend of April 17th. The chart is followed by some research from that weekend’s Subscriber Letter.
The April 17th reading was the lowest in years. I looked at other times the indicator closed below 0 and found instances to be scarce. (Data goes back to 1/1/2000.) Below are the returns over the next ¼:
Even with the loosened criteria, results are still quite bearish.
I have recently added the Weekly Nasdaq Volume Spyx chart to the charts page in the members section of the website. I will soon make all the weekly readings downloadable for Gold Subscribers as I do with the daily Nasdaq and S&P Spyx readings and the CBI. (Click here for a free 1-week trial.)
In my next post I’ll show the 4/24 weekly chart and some additional research associated with that. (Preview: Still below 0 and suggesting possible trouble ahead.)
Over the past 2 weeks the Nasdaq Volume Spyx weekly chart has been giving readings with potentially bearish ramifications. Below is a chart of the Weekly Nasdaq Spyx as it stood on the weekend of April 17th. The chart is followed by some research from that weekend’s Subscriber Letter.
The April 17th reading was the lowest in years. I looked at other times the indicator closed below 0 and found instances to be scarce. (Data goes back to 1/1/2000.) Below are the returns over the next ¼:
Note the above table used position sizes of $1,000,000 rather than the usual $100,000. Ten-eleven weeks out the Nasdaq was down every time. There was some slight overlap though. Below I’ve listed all occurrences along with their 10-week return.
The instances with overlap were 11/02 and 11/04
To increase the sample size, I also looked at instances where the Nasdaq Weekly Volume Spyx came in at less than 10. Those results are below.
To increase the sample size, I also looked at instances where the Nasdaq Weekly Volume Spyx came in at less than 10. Those results are below.
Even with the loosened criteria, results are still quite bearish.
I have recently added the Weekly Nasdaq Volume Spyx chart to the charts page in the members section of the website. I will soon make all the weekly readings downloadable for Gold Subscribers as I do with the daily Nasdaq and S&P Spyx readings and the CBI. (Click here for a free 1-week trial.)
In my next post I’ll show the 4/24 weekly chart and some additional research associated with that. (Preview: Still below 0 and suggesting possible trouble ahead.)
Monday, April 27, 2009
Putting Large Gaps Down Into Context
As I am writing this late Sunday night the S&P futures are down close to 2%. Large gaps are often seen as fading opportunities by traders. This is due to the propensity of the market to reverse gaps. In a study I posted to the blog a few weeks ago, I showed that the propensity of the market to either reverse or follow through on gaps up of 1% up or greater depended largely upon the action leading up to the gap. I have found a similar dependency when looking at gaps down.
Below are the results of a system that looks to purchase $100k of SPY any time it gaps lower by 1% or more and HASN’T closed higher for 2 days in a row. The trade is exited at the close of the day. As you can see, reversals are slightly favored and the net expectation is for further upside. (1998-present.) Click any of the images below to enlarge.
But what about those times like now where the SPY has closed higher for 2 days in a row? Those results are below:
In this case results appear to go from somewhat bullish to strongly bearish. An overbought market that gaps down big tends to sell off further. Below is an equity curve of the system.
As you can see the downside tendency has been quite consistent.
Lastly, I also looked at gaps down following at least two down days in a row. Those results are below:
Here you see that although it’s a 50/50 proposition, the rewards outweigh the risks by a large degree. Of course since Monday’s potential gap down would be coming after two up days, the net expectation would favor more downside.
To best understand the meaning of a pattern, it often helps to take it in context. Gaps are no exception.
Below are the results of a system that looks to purchase $100k of SPY any time it gaps lower by 1% or more and HASN’T closed higher for 2 days in a row. The trade is exited at the close of the day. As you can see, reversals are slightly favored and the net expectation is for further upside. (1998-present.) Click any of the images below to enlarge.
But what about those times like now where the SPY has closed higher for 2 days in a row? Those results are below:
In this case results appear to go from somewhat bullish to strongly bearish. An overbought market that gaps down big tends to sell off further. Below is an equity curve of the system.
As you can see the downside tendency has been quite consistent.
Lastly, I also looked at gaps down following at least two down days in a row. Those results are below:
Here you see that although it’s a 50/50 proposition, the rewards outweigh the risks by a large degree. Of course since Monday’s potential gap down would be coming after two up days, the net expectation would favor more downside.
To best understand the meaning of a pattern, it often helps to take it in context. Gaps are no exception.
Friday, April 24, 2009
Weak Nasdaq Breadth On An Up Day
One of the most notable aspects of Thursday’s trading was the poor breadth in the Nasdaq, as only about 38% of issues closed higher. This is extremely rare on a day where the market rises. I looked at the possible implications a number of different ways in last night’s Subscriber Letter. The consensus whether looking at the effect on the Nasdaq or the S&P was bearish. Below is one study that looks at other times the Nasdaq Up Issues % (Advancers / (Advancers + Decliners)) came in lower than 40% while the S&P closed higher.
(click to enlarge)
Bearish results across the board over the following 2 weeks or so.
(click to enlarge)
Bearish results across the board over the following 2 weeks or so.
Subscriber Letter Trade Results for March
Between vacation the 1st week in April and taxes the 2nd week it’s taken me forever to finalize the March trade results, but they’re finally here. March was the 1st difficult month the Letter has had since last August. There were 2 main culprits – Catpults and Index trades.
The Catapult trades had their worst bout in a long time. The primary culprit was the single worst trade in the history of the system. As I’ll describe below, the results are just a scorecard and not a portfolio return. The Catapult trades are normally scaled into in 3 lots. I always just list the gain/loss of each lot rather than slicing the results of those that only had one lot on. Since I don’t suggest allocation sizes it hardly matters, but listing each lot can exaggerate results sometimes. In October for instance, the results were exaggerated upwards. This month, downwards. The net additive results of all the Catapult trades was a loss of about 17% on 21 lots – or about -0.8% per lot. The single worst trade I referred to above had 3 lots active and they accounted for a loss of 58%.
To be fair, it wasn’t just the Catapults that faltered. I was too early to enter some of the index trades as the market collapsed in late February / early March. I also took them off too early in the bounce. The net additive result of the 5 index-sized lots was a loss of 2.8%. These positions are typically scaled into as well and they were in March, with a maximum of 4 on at one point. What I did very right was I avoided trying to short the bounce on the initial thrust off the bottom. Many traders that use overbought/oversold methods mistakenly viewed the initial bounce as a simple “overbought in a downtrend” setup. I discussed extensively in the Subscriber Letter that shorting the initial bounce appeared to be a dangerous proposition. The only short index trade idea I took wasn’t until 3/26 and I exited it with a nice 2.9% profit on 3/30.
Other systems were quiet as I often defer to the Catapults in times of market stress. It didn’t work out this time, but it traditionally has (see last October and November for some outstanding examples). There was only 1 system trade idea tracked outside of the Catapults and it went for a decent gain.
April so far has been much more efficient. There have been only a handful of trade ideas that have received fills and results have been strong so far. I’ll get to those results next month, though. Below are some of the usual caveats and explanations followed by March’s results.
As mentioned above, 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 portfolio is my IRA. Here I may use options to sometimes get 400-500% leveraged. Other portfolios on the other hand normally take much more conservative stances and some rarely reach or exceed 100% exposure.
The Catapult trades had their worst bout in a long time. The primary culprit was the single worst trade in the history of the system. As I’ll describe below, the results are just a scorecard and not a portfolio return. The Catapult trades are normally scaled into in 3 lots. I always just list the gain/loss of each lot rather than slicing the results of those that only had one lot on. Since I don’t suggest allocation sizes it hardly matters, but listing each lot can exaggerate results sometimes. In October for instance, the results were exaggerated upwards. This month, downwards. The net additive results of all the Catapult trades was a loss of about 17% on 21 lots – or about -0.8% per lot. The single worst trade I referred to above had 3 lots active and they accounted for a loss of 58%.
To be fair, it wasn’t just the Catapults that faltered. I was too early to enter some of the index trades as the market collapsed in late February / early March. I also took them off too early in the bounce. The net additive result of the 5 index-sized lots was a loss of 2.8%. These positions are typically scaled into as well and they were in March, with a maximum of 4 on at one point. What I did very right was I avoided trying to short the bounce on the initial thrust off the bottom. Many traders that use overbought/oversold methods mistakenly viewed the initial bounce as a simple “overbought in a downtrend” setup. I discussed extensively in the Subscriber Letter that shorting the initial bounce appeared to be a dangerous proposition. The only short index trade idea I took wasn’t until 3/26 and I exited it with a nice 2.9% profit on 3/30.
Other systems were quiet as I often defer to the Catapults in times of market stress. It didn’t work out this time, but it traditionally has (see last October and November for some outstanding examples). There was only 1 system trade idea tracked outside of the Catapults and it went for a decent gain.
April so far has been much more efficient. There have been only a handful of trade ideas that have received fills and results have been strong so far. I’ll get to those results next month, though. Below are some of the usual caveats and explanations followed by March’s results.
As mentioned above, 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 portfolio is my IRA. Here I may use options to sometimes get 400-500% 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 below 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. All that aside, below are March’s results (click to enlarge):
Detailed trade by trade results will appear in this weekend’s Subscriber Letter. If you haven’t checked out the gold membership area yet, then click here to sign up for a free trial (only a name and email address required). It’s not just trade ideas. It contains research far beyond the blog as well as members-only charts, systems (with code included), and custom indicators.
Detailed trade by trade results will appear in this weekend’s Subscriber Letter. If you haven’t checked out the gold membership area yet, then click here to sign up for a free trial (only a name and email address required). It’s not just trade ideas. It contains research far beyond the blog as well as members-only charts, systems (with code included), and custom indicators.
Thursday, April 23, 2009
Late Day Reversal Flips S&P To Negative
We’ve seen before how strong end-of-day selloffs are often an overreaction. Frequently this means a bounce back over the next day or so. Tonight I looked at the below situation, which describes Wednesday's action:
Instances are low, but the results are interesting. The pattern is a sharp bounce followed quickly by another drop lower. Of the 9 instances, 8 of them closed higher than the entry trigger at some point in the next 3 days. Amazingly, 7 of 9 closed lower than the entry trigger within 4 days. Looking out 6 days would move the number to 8 of 9 and if you give it 6 days, then all 9 instances closed lower at some point. What I see is a propensity for violent chop over the next few days.
Instances are low, but the results are interesting. The pattern is a sharp bounce followed quickly by another drop lower. Of the 9 instances, 8 of them closed higher than the entry trigger at some point in the next 3 days. Amazingly, 7 of 9 closed lower than the entry trigger within 4 days. Looking out 6 days would move the number to 8 of 9 and if you give it 6 days, then all 9 instances closed lower at some point. What I see is a propensity for violent chop over the next few days.
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