Daily Commentary - Posted on Monday, January 24, 2011, 6:40 AM GMT +1

1 Comment


Jan Monday 24

Market Vane Bullish Consensus Revisited

I just noticed that last weeks Market Vane Bullish Consensus was reported at 65% for the week ending January 21, 2011, the highest level since October 26, 2007.

The Market Vane Bullish Consensus is compiled daily (but is available on a weekly basis as well) by tracking the buy and sell recommendations of leading market advisers and commodity trading advisers (CTA) relative to a particular market (in this event the stock market), and reflects the open positions of the advisers and CTAs as of that day’s market close.

As Rennie Yang from MarketTells already showed, this group is regularly on the right side of the market, and consecutive readings above | below the 50% mark do more often have positive | negative implications for the market’s intermediate- and long-term performance, but not necessarily over the short-term, as Table I below might show.

Table I below shows all occurrences (since 1990) and the market’s (SPY‘s) performance over the course of the then following 5 (1 week), 10 (2 weeks), 15 (3 weeks) and 21 sessions (1 month) later, assumed one went long of the last session of a week (like on January 21, 2011) where the Market Vane Bullish Consensus was reported at or above the 65% mark for the first time (means no consecutive readings were accounted for) in the past.


+ no close below trigger day’s close during period under review
no close above trigger day’s close during period under review

Althoughthe market’s performance is mixed and no significant edge provided over the course of the then following three weeks (probabilities and odds are more or less evenly distributed on both sides of the market), the SPY was trading at a lower level (with a median change of -1.02%) one month later on 20 out of 33 occurrences (or 60.61% of the time), significantly higher than the at-any-time (random) chance of 39.22% for trading at a lower level one month later.

But as already presented two weeks ago (see Will Too Many Bulls Really Make a Bear ?), this group of market professionals is regularly on the right side of the market looking a couple of months ahead. Table II below shows all occurrences (since 1990) and the market’s (SPY‘s) performance over the course of the then following 1 , 3 , 6 and 12 months, assumed one went long of the last session of a week (like on January 7, 2011) where the Market Vane Bullish Consensus was reported at or above the 63% mark for the first time (means no consecutive readings were accounted for) at the same time when the SPY had posted a 52-week high during the then most recent five sessions (means a sizable bullish optimism at market highs).

+ no close below trigger day’s close during period under review
– no close above trigger day’s close during period under review

In this event the market already shows an above-average probability for trading higher one and two months later, but a perfect positive score of 22:0 for trading higher 12 month later (with a median gain of 20.54%).

Conclusions:

Although the number of independent occurrences is limited: Wth the Market Vane Bullish Consensus crossing the 65% mark for the first time since October 26, 2007, chances are tilt in favor of a short-term consolidation of recent gains of the course of the next four weeks, but any sizable pullback might provide a buying opportunity targeting (significant) higher prices into the end of the year (and potentially not only at the end, but during the remainder of the year as well).

Successful trading,

Frank

 

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Sincere thanks are given to all of you.
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Disclosure: No position in the securities mentioned in this post at time of writing.

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Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).

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Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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Comments (1)

 

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