Sunday, June 5, 2011

Bounce this week?

As stated Friday, a strong buy signal was a near miss. For some weekend market fun, let's look at the updated stats for strong buy signals. Stats are for TNA (as always).

Next Day:
Avg Gain: 2.17%
Win Rate: 63%

2 days later:
Avg Gain: 4.58%
Win Rate: 71%
Most losers were big though...

3 days later:
Avg Gain: 6.38%
Win Rate: 71%
Some big losers!

4 days later:
Avg Gain: 8.72%
Win Rate: 75%

So statistics show we should get a nice bounce this week. Notice I said some of the losers were big. By day 3, there was 1 loss that exceeded 10%, most of the others were right around 5% down. So a pop is not guaranteed this week, but when you see a 3 out of 4 chance of a higher close by Thursday with an average gain of nearly 9%, that's a pretty strong bias.

I'm a huge fan of Rob Hanna @ Quantifiable Edges. One thing he offers is a nightly newsletter (w/ free 1 week trial!). Each night he runs a bunch of tested strategies and combines them into an "Aggregated" system. Based on the results of all his studies, he can predict where the SPX might go if all studies average out. Going into Friday, most of his studies were bullish and pointing to an SPX value of 1353. We closed at 1300 and historically when we've closed this far below his aggregated predicted value, a big pop was just around the corner. Sure, there may be a little bit more pain to endure on the long side, but I believe upside potential outweighs the downside risk and I'm very bullish this week.

One thing to watch out for is a possible flip to "unhealthy" status. We flirted with it last Friday (see previous post). I'm hoping for a gap and go Monday to squeeze the shorts, but if we don't get it, the model will flip into "sell the rally" mode and it won't take much to get sell and short signals. On the flip side, buy signals in an unhealthy market have a high win rate and are usually extremely positive. So, we'll see what happens this week. Enjoy the rest of the weekend.

PS - One last piece of bullish evidence. Trouble if we break below, but so far so good.


  1. are you going in 100% tomorow?

  2. No I haven't gotten a 2nd buy signal. We were close Friday but missed it by an eyelash.

  3. Overall market looks weak this morning.

  4. J-Trader - How do you factor in the economic news which is weighing heavy on the market?

  5. Joe, the simple answer is I don't. The system only cares about price action/candlesticks, intra-market relationships, and sentiment.

  6. OK, so you have to weigh that externally when you get your signals.

  7. Joe, I will say this... much in the same way I dislike TA, I also dislike using the news to help trade. Reason being is that the market reacts unpredictably to it. Sometimes bad news is bad for the market, and other times the market will go up despite the news. Sometimes good news will start a rally while other times good news will be sold. I stick to my signals, verbatim with no exceptions. I will have losing trades, no doubt (probably this current one) and I'm ok with that. As long as my winners outweigh the losers, and so far they have, it's all good.