StockMarketAlchemy

Crypto Market Cycles and Seasonality Project Upside Into Mid November 2022

noreply@blogger.com (Pete Birchler) — Wed, 12 Oct 2022 14:57:00 +0000

https://www.loom.com/share/c28a6130ea0f43efbb91ad2cb3e4e172

Cycles and seasonality are projecting higher crytpo prices into mid November.

Watch the video above for brief discussion of the active cycles and seasonality in crypto. The green box on the chart shows a cycle projection for possible future price action.

Here is a link to a webinar replay of the plan I am using to make money in crypto right now, as well as to position for the next bull market. I am recommending this as an affiliate because I think it is an outstanding program and is appropriate even for the total beginner.

Automated Crypto Grid Bot Trading Webinar Replay

Pete

Stocks Appears Set For A Rebound Attempt (but probably more choppy volatility in the next few weeks) 10-12-22

noreply@blogger.com (Pete Birchler) — Wed, 12 Oct 2022 12:31:00 +0000

Click on Chart to Enlarge

Currently stocks are in an interesting position. SPY and QQQ hit new 52 week lows, but small caps and NYSE did not.

There is a stark bullish divergence in breadth (Mclellan oscillator, etc).

So between the non-confirmation and bullish divergence in the internals, it appears possible for a substantial rebound to occur soon.

However, on a pure price backtesting basis I have looked at different criteria combinations as price makes a 52 week low, and the results are NOT universally lopsided to the bullish side right now.

However the above shows the case where a 52 we lows is made with 4 or more closes down in a row. I was a little surprised to see how bullish the skew was over the intermediate term. So in the past that type of action has been somewhat exhaustive selling pressure. So this is a bullish argument.

Click on Chart to Enlarge

This table shows times when both the 14 period RSI was in a bullish divergence at a 52 week low AND then 2 period RSI was less than 10. So it incorporates a longer term extreme sell off and loss of momentum with a shorter term extreme sell off.

Again the results here are bullish, but the skew is more notable in the first 3-10 days.

I am not going to post other data here, but in the longer term a new 52 week low is a bearish skew as it confirms the downtrend.

And without a low or close below the bollinger band, a 52 week low is not as notable for a bullish rebound.

I have elected to highlight the bullish studies above, because on the balance of everything I am looking at, it appears the next 5-6 days would more likely be bullish than bearish. But I do not view it as an extreme high probability occurrence right now.

Bitcoin Reward/Risk Ratio - October 2022

noreply@blogger.com (Pete Birchler) — Tue, 11 Oct 2022 15:17:00 +0000

Here is a look at Bitcoin reward to risk assessment for the coming year.

https://www.loom.com/share/749cc58cec2a42bcb4e291b081452fcc

Based on assessment of past similar market cycles, it appears that most of the price risk of Bitcoin would be in the next 2 weeks.

There is a very high 1 year reward to risk based on past cycles.

Of course Bitcoin has been an outstanding performing asset in its price history, so it would be expected to show strong results.

But by many metrics it could be argued that this bear market is mature, with only a minority of past instances experiencing greater than 20% declines in the next year. Most of those instances were in earlier years when Bitcoin had a smaller market cap, and so it would be even less likely to expect similar magnitude moves currently.

Pete

Crypto Market Overview and What I Am Doing to Make Money In Crypto Right Now

noreply@blogger.com (Pete Birchler) — Tue, 11 Oct 2022 01:36:00 +0000

Watch this video for an overview of crypto markets and what I am doing to prepare for the next bull market.

https://www.loom.com/share/2a299909feed4df8a40e7af8f759697d

I am recommending/promoting a training course that I have previously taken and am using to structure my crypto trading. If you can't get on the webinar, you could still sign up to get a reply.

https://pbirchler4.krtra.com/t/riPW7lDMGcrK

Who I think would get a lot of value from this:

You already are putting money into, dabbling, trading, in the crypto market
You have money that you are investing outside of 401K or IRA, etc
You enjoy markets and want to learn more and
You want to stay abreast of this emerging technology
You are mature enough to follow a plan

Some of the most valuable things I learned in this are:

1. How to use automated grid trading so that all order execution is automated and able to remove the barriers to execution

2. How to make money is sideways markets (which is most of the time)

3. How to use automated trailing grids to generate "yield" (basically by a dollar cost average rebalancing type effect) on long term crypto holdings

4. How to use automated trading to generate cash flow from a mix of cash (or stablecoin) and crypto

5. How to borrow against cryptoassets that you want to hold for the longer term, in effect having a multiplier effect on your assets

Pete

Stocks Are Set Up for a Sharp Short Term Rebound 9-27-22

noreply@blogger.com (Pete Birchler) — Tue, 27 Sep 2022 17:26:00 +0000

Click on Image to Enlarge

This table shows the history of SPY when the previous day RSI2 was less than 2 and today makes a 52 week low. So basically price was already oversold to an extreme level, and then makes a 52 week low the next day. The implication is high probability (90%+) of a high close within the next 5 days.

Click on Chart to Enlarge

This is an hourly chart of SPY showing a stark bullish divergence on the MACD at today's lows. While I don't have a way to back test the significance of this, but in conjunction with the daily time frame price action, this shows a set-up where a 15-60 min chart could be "stalked" for a technical entry signal, with a stop below the low.

I any case it shows that momentum may be slowing, which is typical before a rebound.

Just a longer term note.......there is extreme fear and correlated selling in markets right now by many measures. I have seen many indications that buying and holding for a year from the current levels would have a high probability of success based upon historical precedents.

Price pattern in stocks suggests continued sell off probable today - then sharp rebound 5-12-22

noreply@blogger.com (Pete Birchler) — Thu, 12 May 2022 12:45:00 +0000

This is a quick update to say that after looking at past price patterns in the context of markets making 52 week lows, that with today's gap down I would estimate a higher chance of a continued sell off into the close.

But buying at the close today has a very profitable (volatile) short term set-up for a price rebound in stocks.

The idea would be to buy at today close and then sell at the first profitable close (or the following open).

Probable Continued Sell Off in Stocks 5-5-22

noreply@blogger.com (Pete Birchler) — Thu, 05 May 2022 20:26:00 +0000

Click on Table to Enlarge

It is very rare to have any combination of underlying price factors which produce an extreme negative skew in forward returns in my experience.

But based upon today's market action I looked .....

Criteria:

Yesterday SPY was up >2.5%
Today is down more than 3%
Price is below 200 day moving average

This basically shows a big flip flop in price in the context of a down trend.

There are not many instances, but the past instances show a high probability of a continued decline with a 4:1 maximum loss compared to gain over the next 5 days.

There was also a high probability of 2 or more closes down in a row over the next 5 days.

9 out of the 11 instances showed maximum losses of over 4.9% or greater over the next 5 days.

This scan was not adjusted for volatility. So understand that there could a large increase in volatility over the next few days.

Panic Selling In SPY Suggests A Bullish Short Term Trade Opportunity 2-24-22

noreply@blogger.com (Pete Birchler) — Thu, 24 Feb 2022 13:50:00 +0000

Click on Table to Enlarge

The current sell off in SPY has reached a panic level that puts it in an elite class of sell-offs.

While fear is very high like it is now, it often FEELS very risky to buy stocks.

And certainly prices could go lower.

HOWEVER, the points of very high fear are often the greatest points of short term opportunity to go against the crowd.

The above table shows evidence of this. That shows past instances in SPY when:

Gap down is more than 2%
The last 3 days were down previous to the gap down

Note the huge return from columns AK and AL,

This strategy would be buying at the open today and then selling at the close tomorrow or the following day.

In addition, in these past instances there was 100% chance of a higher close within the next 5 trading days relative to the close TODAY.

Now since volatility is very high, and there are no guarantees, the question here is not so much whether the odds favor a short term buy. They clearly do.

The question is risk management and How Much? to buy.

If not using stops, then bullish option spreads or a naked call option could be used.

If going long the equity, then I like to use the leveraged ETF like SPXL but only use a portion of the account. This should really be part of a defined plan.

For fun here......if you are reading this, do you think prices will rebound and make a higher close within the next 5 days?

Or do you think this time is different?

Comment either way if you have an opinion!

Pete

Back to Back to Back 1% Gap Ups In SPY!!! Huge Negative Skew In Backtests Over The Next Month

noreply@blogger.com (Pete Birchler) — Wed, 04 Nov 2020 23:32:00 +0000

Click on Table to Enlarge

Both yesterday and today were days with back to back 1% gap up openings.

That simple criteria in and of itself has historically led to a mild negative skew to future returns.

However, I have looked at differences on the second day....

does the gap fill or no?
is there any substantial sell-off after the open?
does it close higher than the open?
does it close near the top of the range?

And in the current market environment the last 2 days both did NOT lose more than 0.5% from the open.

And when adding that one simple criteria, we are left with the table above. It has a huge negative skew over the coming 2-4 weeks.

It is rare to ever find any combination of factors that produce a negative skew like this.

I posted about a similar set up in late 2018.

So, while today had a monster follow through (in some sectors) to yesterday, I would say the odds strongly favor some significant give back of the recent gains.

Today also had some odd underlying internal data in that LESS than half of the volume on NYSE was in up issues and advancing issues barely outnumbered decliners.

So maybe today wasn't as massively bullish as it would seem. The value line geometric index (unweighted average stock price) was actually slightly DOWN today.

There may be a few trading strategies that make sense here, but a bear call credit spread or a bear put debit spread would make sense to me with expirations 2 weeks out from now.

Price Projections on SPY For a Probable Continued Decline 10-1-20

noreply@blogger.com (Pete Birchler) — Thu, 01 Oct 2020 22:37:00 +0000

Click to Enlarge

I have produced a projection here with both a projection based upon current short term cycles which are the red lines which project about 6-8% expected declines over the next week from today's highs.

This would be in the higher (more negative) middle of the range of back tested past similar price pattern to our recent few weeks.

I back tested some failed reversals similar to last week's (which has not failed yet), and saw that similar setups have declined on the order of 10-20% within a week or 2 after a close below the failed reversal.

So that would put us towards the lower portion of the red rectangle on the chart.

That chart shows a price a time window based upon some projections of various portions of the declines that have occurred since the February top.

So if the correction is NOT over yet (which is my bet), then expect a pretty sizeable sell off from here, that could get wild and volatile quickly and be bigger than most people would expect.

From a technical and program trading standpoint, the 200 day moving average is towards the top of that projection range, and that would be the next algorithmic buy point that could see a buying surge if it is touched.

NOW.....IF....prices were to decline to the 200 day average and rebound, a further break to new lows could be a continuation or acceleration of the downtrend point in my opinion.

If have seen many times over the years where prices decline to the commonly watched moving averages and make a short-term rebound after touching them. I have learned to expect that, and to often recognize the signs that they are just "blips" of automated trading but often don't really reflect a true reversal.

In summary, I believe there is high risk and pretty high odds of some declines from here for days or weeks. I think it would be wise to NOT be long stocks moving forward until the negative cycle window has passed.

Pete

Get Out of Stocks At This Morning's Open - Oct 1 2020

noreply@blogger.com (Pete Birchler) — Thu, 01 Oct 2020 13:06:00 +0000

Currently everything I am looking at, taken together, suggests that after this morning's apparent gap up, the risk is much higher than reward over the coming couple weeks.

I don't have time to put much info or charts here but I will quickly verbally summarize.

Today there is about a 1% gap up indicated. There was also a 1% gap up on Monday (which has not been filled).

Back tests show about a 2:1 or greater risk after the open than reward.
Back tests show about 66% chance of the close being below the open today.
Back tests show about 66% chance of prices closing lower than today's close at the 5-6 day forward point (Oct 9th in this case)
Back tests show about 90% chance of a lower close than today's close within the next 5 days.

I would estimate the chances of a big decline (like 5%+ in the next 5-6 days at about 33% or higher)
Short term cycles that I follow are peaking this morning in the context of intermediate term cycles being in a strong downward portion of the cycle. This info is extracted independently of the other data above, but is clearly giving a confirming downside bias to the historical back tests.

The strongest portion of the coming down cycle appears to be between today and October 13th.

This recent decline has been "weird" in that it never registered any significant fear type readings in the most reliable and consistent measures that I follow (put/call ratios, VIX and VIX/VXV ratio).

The big money is apparently basically unhedged and long both stocks and the stock futures. CoT data shows that the hedgers and small speculator/gamblers were the buyers since March. Large funds which usually buy rallies, were not buyers since March.

So if prices decline, I don't see any other option than for the big money hedgers to quickly sell out. It could be a stampede to the downside at some point. Add to this, the potential for the large hedge funds to begin entering new short positions on a technical break, and the recipe seems strong for a big decline if the September lows are broken.

Lastly from a price pattern standpoint, I had looked at the 9/21/20 decline and attempted reversal day. It was pretty unique, but in 25 years of data there were 4 previous very similar days.

1 marked a significant bottom
3 lead to 10-20% declines over the next 2-4 weeks
So if there is a close below the 9/21 LOW, I would estimate the odds at 66% or higher of a wipeout type of decline shortly to follow.

Pete

Possible Short-Inverse Set-Up Early This Week

noreply@blogger.com (Pete Birchler) — Mon, 14 Sep 2020 16:19:00 +0000

Today stocks are off to a stronger start, but in the context of many things that I am looking at, this could be the last little rally before a strong sell-off resumes.

On a purely objective, back testing basis, a 2% + rally today on lower volume would really fit the bill of a high probability inverse/short set-up. I have probably posted about these days before, but since most of the market time is not in high volatility down trends, this scenario does not come up often.

Now I won't have all the data until we see what happens today, but if today closes up 2-3% on lower volume, my suggestion is to BE OUT or GET OUT of this market if you are holding positions.

For those of you that are unaware, we currently are in the midst of a never-before-seen level of option speculation on further upside in the market. In my experience, this speculation will always be unwound or punished. It is just a matter of when.

Without getting into chart or numbers, I believe that a large amount of the stimulus $ created and distributed this spring and summer has found its way into speculative markets.

There has been massive call option speculation

This has created a probable "forced" stock buying in mass quantities by market makers who sold the options

As the options expire, there will likely be mass quantities of stock to be sold for market makers to get back to neutral positioning

A huge volume of these options will expire this week, and so it would seem like there will be an underlying down pressure on equities as this week begins to wind down and move to next week.

Since this speculative option bubble is greater than anything seen before, the reaction and fallout from it, will likely be larger than what most historical corrections would be.

The call option orgy really got crazy from June through August.

While it seems crazy, I think that it is very reasonable, and I would actually put greater than 50% odds that the stock indexes in general will fall back below the March lows before the speculative unwinding is complete.

Cycle analysis that I follow shows mid this week as a short and intermediate term cycle high, with a very strong downward phase projecting into mid or late October.

Pete

Oil Stock Prices Look Ready to Rebound to Me 3-30-20

noreply@blogger.com (Pete Birchler) — Mon, 30 Mar 2020 22:29:00 +0000

Click on Chart to Enlarge

The chart shows oil prices divided by oil stock prices.

Of note, when there have been major spikes lower in this ratio, oil has consistently rapidly rebounded.

The other instances showed quick gains of 50%+ in 3-6 months in oil prices.

So volatility is high, but the suggestion here is that short term trading systems can go into buy mode here with stops of course.

The chart shows that of the major lows on this chart, most of them lead to major advances of over a year in time. The early 2015 was a quick 50% rally in oil followed by lower lows, but still a good short term trade opportunity.

Post "Crash" Rebound Projections for SPY - March 25, 2020

noreply@blogger.com (Pete Birchler) — Wed, 25 Mar 2020 17:04:00 +0000

Click on Chart to Enlarge

This chart of SPY shows what are some projections for a continued advance over the coming weeks if the recent lows holds.

This is based on rebounds following some sharp declines into 52 week lows over the last couple decades.

The blue lines represent average MAX gains over 3, 5, 10, and 21 trading days in terms of ATR multiples which bases the projection upon volatility.

That being said, none of the instances in the table below actually gained more than about 23% over the following 1 month. 23% from the recent closing low would put SPY at around $273 which is what the red line represents.

In the comparable past instances a trailing stop of 2 or 3 times the 10 day ATR allowed the gains of the following rally to be captured. The ATR would be anticipated to shrink as the rally continues and volatility shrinks. So that is a wide stop now, but could shrink considerably by 2-4 weeks from now.

Click on Table to Enlarge

This table shows the dates of the comparable lows that I am making projections off of.

Click on Chart to Enlarge

The chart here is just for historical context in that the 2 most similar historical precedents to our current environment were 1929 and 1987.

1929 had a more sharply angled and less choppy advance that retraced 50% of the crash losses before rolling over again.

1987 had a quick couple day rebound of 15% followed by a sloppy trading range for a year.

Pete

3-9-20 Stock Market Update and Expectation

noreply@blogger.com (Pete Birchler) — Mon, 09 Mar 2020 22:25:00 +0000

The snips here show the results of a scan on past instances in SPY when it was down more than 6% in a day.

SPY only goes back to the mid 1990's, so it is short sighted in terms of history, BUT the data does include a couple of the largest bear markets in history, so it could give us some useful guides.

The implication is that there is about a 2.6:1 greater upside potential over the next 3 days compared to downside. This is quite strong. Note that basically all past instances increased 5% or more at some point over the next 3 days.

The lower table shows that all instances made a positive close above the signal day (today) over the next 5 days at some point. But all of them also showed 2 higher closes over the next 5 days.

And that strategy has given the higher return compared to exiting on the first positive close.

Also note that all prior instances declined at least a little, tiny bit further over the next few days. In fact looking at the next day's data only (not shown here), all of them made at least a slight loss during the next session.

So the point here is that this is an exceptionally volatile market, but is presenting an exceptionally high reward over the very short term. If not in the market, a simple strategy would be to enter tomorrow at a limit of today's close.

Then exit at the first positive close or second positive close OR after 5 days if not profitable.

Average future return peaked at a 5 day hold on this set up.

That also fit with short term cycles which suggest a 3-4 day short term advance is due. But after than, there may be further downside or retest of the lows.

Continued Extremes Suggest Imminent Sharp (Short Term) Rebound In Stocks - 2/28/20

noreply@blogger.com (Pete Birchler) — Fri, 28 Feb 2020 23:07:00 +0000

Some key data points from today are:

4 closes in a row below the lower bollinger band on SPY
4 closes in a row above the upper bollinger band on VIX
2 period cumulative WRSI2 less than 1

The past history of SPY demonstrates extremely strong (~100%) past history of a high close than the trigger day within the next 5 days.

There was very strong tendency for the next day to close higher.

Also, today was 2 days in a row with gap downs more than 1%. This also has led to strong rebounds.

I looked at what happened in past times where the 1st gap down was NOT filled. And even though prices went dramatically lower the second day, past similar instances suggest around a 50% probability of the 1st gap being filled within the next 5 days.
That would put price back up at 311 on SPY.

From the most extreme similar instances, the MAX gains over the next 5 days were mostly clustered between 2.25 and 3.5 ATR's (10 period).

This would suggest that the maximum gain over the next 5 days could be a very sharp rise to between 310-320 on SPY.
The large gap down from Thursday is currently only 2 ATR's above Friday's closing price, so it seems that that gap fill would be a good target for this rise.
Assuming we saw a rise and a close above the gap level at ~311, I think that would be an ideal exit time if it occurs.

Pete

Short Term Rebound Is Highly Probable 2-26-20

noreply@blogger.com (Pete Birchler) — Wed, 26 Feb 2020 21:30:00 +0000

I have looked at a bunch of different criteria comparing recent action to past history of SPY.

Some key factors that have historically made for short term rebounds include:

2 closes in a row below bollinger bands
Back to back 3% down days
Gap down of 2% followed by further downside
several others....

One very simple scan that triggered today is a 2 day cumulative Wilder's RSI2 reading below 2.

The history of SPY had this set-up 27 times (regardless of bull/bear market), all 27 showed a positive close within the next 5 days. The average gain was large also, as would be expected given the volatility.

I expect a continued volatile market but with a high probability of a short term rebound over the next couple days.

Currently the short term cycle analysis I follow is suggestive that there will be continued higher volatility with probable lower lows over the coming 1-3 weeks.

SPY Downside Volatility Breakout - Projections for Potential Decline Into Early January 2020

noreply@blogger.com (Pete Birchler) — Wed, 04 Dec 2019 23:25:00 +0000

Click on Chart to Enlarge

Yesterday SPY closed below a trailing 3 ATR volatility stop. I looked back over the last few years at the decline from high to low the other times the volatility stop was broken.

I excluded a few in the middle of 2017. That market environment was exceptional/historic momentum. A few breaks that year were smaller than the average on this chart, but for our purposes I am just showing a range of expectation.

So from the precedents here, it seems likely that price would retest the recent highs from September, and possible decline well below that before the correction is over.

As long as price stays below the recent highs, I would anticipate possibility for a sharper sell off into the new year.

High Probability Set Up In Stocks - Short Term Rebound Expected 10/3/19

noreply@blogger.com (Pete Birchler) — Thu, 03 Oct 2019 22:46:00 +0000

SPY has closed below its lower bollinger band for 3 days straight. That itself produces a robust signal with high probability of short term skew to the upside in stocks in coming days.

Factoring an uptrending market into it improves the signal.

Also as of today we are seeing some extreme readings in the put call ratios. I have looked at these readings coupled with a variety of other combinations of data from today's session, and there consistently is a high probability of a higher close in coming days.

There is approximately 90% probability of a high close than today's close within the next 5 days. Including any losers, the average trade return is quite good - depending on the scan combination, around 1% expected value or higher.

Most of the scan combinations I looked at had higher expected values by holding for either 2 consecutive higher closes OR two higher closes within the next 5 days. This strategy dropped the win percentage down to the 80%+ range but produced a higher expected value on most criteria combinations.

In summary, I expected some chop and volatility into next week, possibly with lower closes yet to come, but the odds appear to be high for a higher close above Thursday's close within the next week.

Cotton Showing Extreme Trader Positioning - Suggests Major Rally Is Imminent

noreply@blogger.com (Pete Birchler) — Tue, 10 Sep 2019 23:10:00 +0000

While I do not trade futures, I follow many commodity ETFs and am most comfortable and profitable with trading those markets, in addition to stock indexes.

Currently, cotton is in an extreme positioning where the producers (red line on bottom panel) are actually net LONG. These are the farmers, etc who produce cotton and who typically are using the futures as a hedge against their physical product.

So they are almost always net short. For the data breakdown going back to the mid 2000's, there is not another time that producers have been net long. So given that price is hovering right near a 10 year low and the producers are indicating they don't need to hedge, I think this market is on the brink of a bear market low, or at least a major rally.

Speculative short interest is at an all time high, so there is plenty of "fuel" to feed a major vertical type rally if/when it gets going. Short covering can lead to quite large and rapid upward spikes off major lows.

The last major rally in this bear market was about 10% in 2 months. But a short covering rally off a low like this could be more like 20-30% in 2 months or less.

Click on Chart to Enlarge

Silver and Bonds Look to Have Completed "Blow-Off" Tops

noreply@blogger.com (Pete Birchler) — Thu, 05 Sep 2019 20:16:00 +0000

Both silver and bonds have recently spiked into a common type of blow-off top pattern, some off which I have highlighted on this blog in recent years.

Sentiment and large trader positioning is ripe for a trend reversal or stall.

If you are one to get caught up late in a trend when it is obvious, my suggestion is that this trend has run its course. And now is time to exit on an intermediate term basis, certainly NOT to get sucked into what WAS a strong trend.

Pete

Short Term Rebound is Highly Probable over Next 3-5 Days in SPY ; Longer Term, BEWARE 8-5-19

noreply@blogger.com (Pete Birchler) — Mon, 05 Aug 2019 22:10:00 +0000

Click on Chart to Enlarge

There are multiple short term extremes showing up right now indicating high probability of a short-term rebound in stocks.

Based on multiple back-tests of different data sets (price, volatility, put/call ratios), I would estimate the probability of a close above today's close within the next 5 trading days to be about 90%.

The chart above shows the average price action over the next 3 days in terms of 10 day ATR.
These projections are based upon the price set-up of 3 consecutive closes below the lower bollinger band on SPY.

The average close 3 days ahead has been about +0.9 ATR.
The average maximum gain over the next 3 days has been about +1.85 ATR which would put price up around yesterday's low.
The average maximum loss over the next 3 days has been about -1.0 ATR which is about 4.00 on SPY currently.
Also of note, for the same set-up, 50% of past instances filled the gap open down within the next 3 days. So about 1/2 the time we could expect SPY to trade back up to 292.62 or higher within the next 3 days.

Now, on a longer term basis this looks very much like a bull trap topping process, and there are multiple long term price and sentiment divergences to suggest that a bull market high could be in on this recent failed breakout to new highs.

My personal stance is to continue to trade with a bearish perspective as long as new shorter term technical sell signals occur below the recent highs.

Pete

0.5% Gap Downs 3 Days In a Row

noreply@blogger.com (Pete Birchler) — Mon, 14 Jan 2019 19:02:00 +0000

There have been 3 days in a row of 0.5% or greater gap downs in SPY as of today. Action after the open has been relatively tame with no big down days.

Without factoring in any other data, just looking at the 3 gap downs in a row, there were 26 instances in the history of SPY (back to late 1995).

19 closed above the open on the day, with an expected value (including losses) of a little over 1%.

Also, 20 out of the 26 filled the gap down of the most recent day (today in this case) within the next 2 trading sessions (by Wednesday in this case).

The flip side of this is that, there are some signs that suggest a pullback is probable. So I am looking to make an inverse trade on the index ETFs. But the data above suggest we may anticipate a fill of today's gap before considering an inverse position.

I am monitoring the 30 min and 60 min SPY charts with a 3.0 volatility stop as an entry signal for a short/inverse trade.

The above data also basically fit with what I am seeing from time cycle analysis. Short term the cycles are up until Tuesday/Wednesday, than are turning lower into next week.

Pete

SPY Closes Below Bollinger Band 4 Days In a Row - Implication is STRONG For a Rebound In the Next 3-5 Days

noreply@blogger.com (Pete Birchler) — Wed, 26 Dec 2018 14:08:00 +0000

Click on Tables to Enlarge

As of Monday, SPY had closed below the lower Bollinger Band for 4 days in a row. This is a rare occurrence. And it has closed below the lower band for 5 out of the last 6 days.

This set up is one of the strongest I have ever filtered for in terms of short term skew towards the upside. The stats above show about a 4:1 greater MAX gain to MAX loss over the next 3 days.

That being said, as today is indicating a gap up, some of that potential gain is gone if buying at the open. However, gap ups after these signals, on average, lead to further gains from the open.

So while we have had some other signals in the past week which have often led to short term rebounds, and this time the sell off continued, the indication here is that some reversion to the mean is likely to occur in terms of trading systems.

Click on Table to Enlarge

This little table shows dates on an amalgamation of filtered signals that I have noted to have positive short term skews in the past. There will be a number of duplicates that are not removed in this sample, but the indication is clear.

There is over a 90% probability of a higher close than the signal day within the next 5 days. And nearly a 2% expected value if buying at the close of the signal day, and exiting at the first profitable close in the next 5 days, or just exiting at the close 5 days later if not.

I like this type of strategy for directional option trading. There is high probability of success, the expiration date is clear, and no stop needs to be used (depending on how deep ITM the option is and your risk strategy).

Because volatility is high and much of the option value can be sucked out if trading close to the money, some ideas are to trade deep ITM (like >0.90 delta), or to buy an option with 2 weeks until expiration, but keep the same exit strategy within 5 days. That way, not all the time value will get sucked out even if the exit doesn't come for 5 days.

Back to Back Closes Below Bollinger Band - Both Down 1% or More

noreply@blogger.com (Pete Birchler) — Thu, 20 Dec 2018 22:38:00 +0000

First my post from yesterday contained what appears to be an error in that End of Day data showed the VIX unchanged and I had stated it was down 2%. My hourly chart data showed the close down 2%, but the daily chart data showed it unchanged.

That being said the market continues to appear to be very near a short term capitulation and brief rebound.

I ran a filtering of the last 23+ years of SPY data and looked at:

2 closes in a row under the lower bollinger band
Both days were down more than 1%

The results were 35 instances. 33 of them had a higher close within the next 5 days.

If entering at the close of the signal day (today) and exiting at the close of the first higher close within the next 5 days, or exiting at the close of the 5th day if there were no higher closes, then the EV was 2.37% gain.

So the odds appear to favor an rebound rally in short order. I would caution, that this does not mean the decline is over. And a sharp rally for a couple days could be a lower time frame short set-up for another move lower.