A Look At How Fridays Create The Most Reliable Bounces

By Rob Hanna

Friday is generally not terribly reliable in being a day where the market bounces from a low. It is one of the least popular days for this to occur (along with Wednesday). But a potential positive about a Friday bounce is that when they do occur, they tend to be the most reliable moving forward. The below tables look at performance following a bounce from a 50-day low. The 1st table looks at performance 1 day later, and the 2nd table looks at performance 5 days later.

2018-10-14-1

Continue reading A Look At How Fridays Create The Most Reliable Bounces

Back to Back 50-day Lows and Extremely Low RSI(2) Readings

By Rob Hanna

Strongly oversold markets often contain a short-term upside edge. Of course oversold can always become more oversold. Wednesday took the SPX down to a 50-day closing low. Additionally, many short-term price oscillators, like the RSI(2) showed extremely low readings. Further selling on Thursday meant another 50-day low and even lower readings.

The study below appeared in the Quantifinder on Thursday afternoon. It looked at other times the SPX posted back-to-back 50-day lows and extremely low RSI(2) readings.Instances are a little lower than I typically like, but the numbers are incredibly bullish and seem worth noting. I am seeing several studies right now all suggesting a bounce is highly likely in the next few days. This study is just one such example.

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SPX Near Monthly Highs While RUT Near Monthly Lows

By Rob Hanna

I have spoken a fair amount lately about the “split” market, and how that has historically been followed by declines. But not all kinds of splits are bad. Wednesday we saw the SPX rise while the RUT closed lower. That is not unusual on a 1-day basis. But it has now been several weeks in which they have been heading in opposite directions. RUT closed in the bottom 25% of its 20-day range on Wednesday while SPX closed in the top 25% of its 20-day range. The study below looks at other times where this occurred.

2018-09-20-1

Continue reading SPX Near Monthly Highs While RUT Near Monthly Lows

S&P 500 vs. Fund Flows – Divergence

By Callum Thomas

A curious divergence has opened up between the level of the S&P500 and the cumulative level of fund flows into US equity funds (mutual funds and ETFs).  The last time in recent history that we saw a similar type of divergence was in the wake of the 2015/16 twin corrections where fund flows tapered off and then after the election it was game on.  So the open question is whether this divergence in flows vs price will be followed by a similar type of ‘onwards and upwards’.  The counter argument might be that this is actually smart money flows… and a second correction is imminent.  Either way, it’s clear that investors are *not* throwing caution to the wind.

Continue reading S&P 500 vs. Fund Flows – Divergence

Control Top

By Tim Knight

Before I get started, I wanted to mention that I just received the full-color version of Silicon Valley Babble On, and it is just gorgeous. If you’re one of the well-to-do Slopers out there, you might want to spring for this luxury item, because it looks absolutely fantastic. It’s not cheap at 79.95, but here’s a link if you’re interested.

Now I’d like to share with you three charts of the S&P 500 cash index. I have deliberately left off the axis labels, so you’ll know neither the times nor the prices.

Continue reading Control Top

What 3 Days Of Strong NASDAQ Breadth Suggests For Today

By Rob Hanna

Not only did we see gains for the 3rd day in a row on Monday, but the NASDAQ put in some strong breadth numbers. This triggered a study that looked at times Nasdaq advancers outnumbered decliners by more than 3:2 for 3 days in a row. It suggested such persistent lopsided breadth was about enough, and it was often followed by a down day. Updated results can be seen below.

2018-07-10-1

The numbers imply a downside edge. I also included the equity curve (which I normally only do in the subscriber letter).

Continue reading What 3 Days Of Strong NASDAQ Breadth Suggests For Today

Most Shorted Stocks vs. the S&P 500

By Callum Thomas

This chart draws inspiration from some of the charts and themes I shared in last week’s S&P500 #ChartStorm, it shows the Thomson Reuters “Most Shorted Stocks” index vs the S&P500 (as well as the performance ratio between the two).  When you see the “most shorted stocks index” materially outperforming vs the broader index you can draw one key conclusion: shorts are getting squeezed.  Basically what happens in a short squeeze is you get a rush to cover short positions as bears get caught wrong-footed.  So you can basically say that much of the recent rally was driven by short-covering.  However, as I’ve noted elsewhere there are a few macro undercurrents that are preventing the S&P500 itself from heading unrestrainedly higher, and this is creating a series of winners (e.g. US small caps) and losers (e.g. emerging markets).

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Weak Week After June Opex

By Rob Hanna

I noted a few years ago here on the blog that the week after June options expiration has done especially poorly in recent years. The table below is updated and shows all such weeks dating back to 1999.

2018-06-18

Those are some pretty weak numbers. Below is a 5-day profit curve.

2018-06-18-2

As you can see, it has been quite a streak of bearishness. Twelve out of the last fourteen years have closed down. So it would seem we may be entering a week seasonal period.

I will note that this week has not always exhibited such bearishness. Between 1979 – 1989 this week posted gains every year. (But S&P options, and hence opex week, did not exist until 1984.) Overall, I am viewing it as a mild bearish headwind for the time being.

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The Strength Of Two Unfilled Up Gaps & A 50-Day High

By Rob Hanna

One interesting study that I discussed in last night’s subscriber letter considered the fact that SPY left an unfilled upside gap for the 2nd day in a row while closing at a 50-day high. The results table I shared can be found below.

2018-06-05

The size of the follow-through isn’t terribly large, but it has been quite consistent that some follow through was achieved in the next few days. The market is certainly overbought here. But overbought does not always mean an immediate reversal. While evidence is mixed, (for instance, an expected substantial SOMA decline this week is creating a bearish headwind this study suggests the kind of strength we have seen over the last couple of days is often followed by more strength. And it can serve as a nice little piece of evidence for traders to consider as they establish their market bias.

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The Bullish Tendency of the Thursday after Memorial Day

By Rob Hanna

Thursday after Memorial Day has been a day that has exhibited a bullish bias for many years. I last showed this on the blog last year. The chart below shows updated results.

2018-05-30

Single-day seasonality can certainly be overrun by other forces, but the Thursday after Memorial Day has been a good one for many years. That may be something that traders want to keep in mind for Thursday.

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Slow Boiling Bull Frogs

By NFTRH

The following is part of the Market Sentiment segment of this week’s edition of Notes From the Rabbit Hole, NFTRH 498. I’ve given it a funny name that would be less funny for a lot of people if the scenario actually plays out.

Slow Boiling Bull Frogs

Last week we reviewed Commercial Hedgers data that was bullish for the stock market and other sentiment data points that were not. The picture was mixed and our view was that a bounce (to short into, if you are bearish) was likely.

Refining that a bit, we reintroduce the ‘M’ retest possibility. It’s not a call or even a favored outcome since the stock market is still generally below markers like the SMA 50 and a series of declining highs. But as Apple showed us last week, this pig can scream higher at any time that animal spirits get unleashed.

One problem for longer-term bulls is that unlike the big, ultimately bullish event in 2015-2016 today’s SPX has not seen a corresponding rise in the VIX as the market has declined. The off-the-cuff interpretation of that is complacency that is out of whack with the flat to negative price action over the last several weeks.

spx, vix Continue reading Slow Boiling Bull Frogs

What the EPS? S&P500 Earnings Outlook

By Callum Thomas

Here’s the second installment of the new “What the EPS?” series, where I look at earnings trends across sectors, countries, regions…. taking my usual top-down approach.  This week we look at earnings trends for the S&P500, specifically the path of forward earnings (up sharply), trailing earnings (up slowly), and estimates of long term future earnings growth (up sensationally*).

The key points on the S&P500 earnings outlook are:

-Forward earnings growth is running hot (thanks to a spike in upward revisions driven by the tax cuts).

-Trailing earnings are plodding along, following a recovery from the 2015/16 earnings recession.

-Long term growth estimates ave spiked to the highest levels seen since the dot com boom.

1. Forward vs Trailing Earnings Growth:  This is an important chart for anyone who cares about the S&P500.  It shows the pace of growth in forward earnings (consensus estimates of the next 12 months earnings) vs trailing earnings (actual earnings over the last 12 months). The obvious standout is the surge in forward earnings (thanks to tax cuts), the less obvious standout is the earnings recession in 2015/16, and relatively lackluster pace of earnings growth thereafter – no signs of overheating there! (yet)

Continue reading What the EPS? S&P500 Earnings Outlook