Daily Commentary - Posted on Thursday, December 15, 2011, 1:40 PM GMT +1

2 Comments


Dec Thursday 15

75%+ Declining Volume 3 Days in a Row

The SPY‘s (S&P 500 SPDR) lost another -1.06% on Wednesday’s session, and volume in declining issues outnumbered volume in advancing issues by a 3 : 1 ratio (or ≥ 75.0%) the third day in a row (89.51% on December 12, 81.20% on December 13, and 78.04% on December 14).

Historically, such persistent selling pressure has provided a favorable buying opportunity at least over the short-term.

Table I below shows all occurrences (since 1990) and the SPY‘s (S&P 500 SPDR) performance over the course of the then following 1 to 4 sessions (in this event until Tuesday, December 20) and/or until the end of the week (in this event on Friday, December 16) in the event volume in declining issues on the NYSE outnumbered volume in advancing issues by a 3 : 1 ratio on three consecutive sessions in the past (this time no seasonality like the favorable end-of-the-year effect, turn-of-the–month, … is accounted for).

The SPY closed at a higher level on the then following session (in this event on Thursday, December 15) on 10 out of 12 occurrences, and closed at a higher level two days later on all 12 occurrences, thereof up 1.0%+ on 10 occurrences (in conjunction with a mean and median change both exceeding the 2.0%+ threshold).

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In order to increase the sample size, I lowered the 75%+ (3 : 1 ratio) threshold to a 70%+ threshold. Now Table I below shows all occurrences (since 1990) and the SPY‘s (S&P 500 SPDR) performance over the course of the then following 1 to 4 sessions (in this event until Tuesday, December 20) and/or until the end of the week (in this event on Friday, December 16) in the event volume in declining issues accounted for 70%+ of total volume on the NYSE on three consecutive sessions in the past.

The SPY closed at a higher level on the then following session (in this event on Thursday, December 15) on 19 out of 22 occurrences, and closed at a higher level two days later on 20 out of 22 occurrences, thereof up 1.0%+ on 15 occurrences while lower 1.0%+ only once. In addition, the SPY closed at a higher level one or two days later on all 22 occurrences.

 

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Conclusion(s)

Even by leaving out any kind of seasonality, such persistent selling pressure on three consecutive sessions has always led to at least one higher close one or two sessions later (in this event at or until Friday, December 16) in the past.

Have a profitable week,

Frank

Disclosure: No position in the securities mentioned in this post at time of writing (long DAX German Aktien Index).

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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). Index data (e.g. S&P 500 cash index) does not account for dividend and cash payments.

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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 Pinnacle Data Corp., and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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Comments (2)

 

  1. william says:

    Can you enter thur and fri results in to see if there is strong trend for mon and tues?

    What affect did the quadruple withcing of fri have on the trend?

    • TradingTheOdds says:

      William,

      in this event “3 sessions later” and “4 sessions later” already represent next Monday’s and Tuesday’s session.

      Thursday was up +0.37% (now 20:3 instead of 19:3), and whatever happens today will – at least with respect to the setup triggered – not change Monday’s and Tuesday’s chances for a higherlower close.

      Today’s OpEx will not change anything, the stats are solely based upon 3 consecutive sessions with lopsided volume on the downside (no calendar effects or anything else).

      Best,
      Frank

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