It's understandable that traders who were long stocks would have stopped out after Monday's weakness and uncertain news. We made a multi-day low intraday and charts weren't looking so good.
By Monday's close, we had between 20% and 40% of S&P 500 stocks trading above their three and five-day moving averages, so weakness was pretty broad.
One of my query engines spit out that when we have that percentage of shares trading above their short term moving averages in a low VIX regime, the next four trading days averaged a gain of .52% (68 occasions up, 30 down). Across all other occasions, the average four-day gain was .08% with winning and losing periods pretty even. My short-term trading model, which had been modestly bearish, now was flattish to slightly bearish.
(See the Index Indicators site for the breadth data and a simple backtest engine.)
We opened firm on Tuesday, with NYSE TICK showing significant levels of institutional buying.
For those operating on the day timeframe, what's the trade?
Once you see tape action confirming historical odds, you have a trade with potential. History doesn't always repeat itself, but trading with history on your side beats being ignorant of history.
Further Reading: Trading by Handicapping Odds
By Monday's close, we had between 20% and 40% of S&P 500 stocks trading above their three and five-day moving averages, so weakness was pretty broad.
One of my query engines spit out that when we have that percentage of shares trading above their short term moving averages in a low VIX regime, the next four trading days averaged a gain of .52% (68 occasions up, 30 down). Across all other occasions, the average four-day gain was .08% with winning and losing periods pretty even. My short-term trading model, which had been modestly bearish, now was flattish to slightly bearish.
(See the Index Indicators site for the breadth data and a simple backtest engine.)
We opened firm on Tuesday, with NYSE TICK showing significant levels of institutional buying.
For those operating on the day timeframe, what's the trade?
Once you see tape action confirming historical odds, you have a trade with potential. History doesn't always repeat itself, but trading with history on your side beats being ignorant of history.
Further Reading: Trading by Handicapping Odds
Posts
