Sunday, August 26, 2007

Will a Strong Market Get Stronger--And Other Ideas to Start the Week

* Followup to Market Strength - My update to the Trading Psychology Weblog offers a chart of the Cumulative NYSE TICK, and you can see the recent surge in buying interest. Indeed, we've had solid daily cumulative TICK readings for six consecutive trading sessions. I went back to July, 2003 (when I first began archiving the data in this fashion; N = 1022 trading days) and found 31 instances in which the five-day average Cumulative TICK was above +500. Ten days later, the S&P 500 Index (SPY) was up by an average of 1.20% (27 up, 4 down). That's quite a bullish edge compared to the average ten-day gain of .37% for the remainder of the sample. Overall, surges in buying have tended to yield further buying interest before reversing.

* New Features on Seeking Alpha - The Seeking Alpha site aggregates a number of blog features by category, such as "The Market", "ETFs", "China", etc. An interesting and useful new feature is a listing of hedge fund jobs. I also like the listing of transcripts from company conference calls. Excellent resource.

* Options Strategy for This Market - The Daily Options Report notes the collapse in the VIX and finds a strategy for exploiting the volatility skew.

* Catching Up on Markets - Charles Kirk offers more links, including perspectives on a Fed rate cut and whether that would do any good. The Big Picture offers its weekly wrap-up, with a startling view of emerging markets performance during the recent weakness. Abnormal Returns examines a convergence in returns across different investment strategies and a view of what happens after market booms. Millionaire Now! offers a wide summary of blog reviews and takes a look at how the real estate weakness is affecting the realtor business.

* Do They Make a Difference? - The excellent CXO Advisory blog summarizes research regarding secondary offerings and stock buybacks and whether those affect future price changes.

6 comments:

mOOm said...

People are complaining of low volume on this rally though.

Friday closed at HoD and highest in five days (fast(5,3) stochastic =100). This can be a good short signal in my backtesting for the following day and often is a good signal for a longer term short trade (e.g. on Feb 21 2007). One of my model indicators (NDX daily data) switched to short for Monday. This one is not terribly reliable but this combination looks good for going short.

Brett Steenbarger, Ph.D. said...

Hi,

Thanks for the perspective. I also see short-term weakness in the new high data and in the action of the small caps. I suspect, however, that this might manifest itself more as a trading range than as an outright decline, esp in the near term. Volume should tell the story!

Brett

st said...

Interesting that your tick study contrasts with your 10 day high/low study. I guess this sort of discrepancy is what makes trading so interesting. I'm curious to know what the tick trend was during those extreme high/low periods when markets reversed. And vice versa where was the high/low trend when tick expansion occurred in the past.
ST

Mike said...

Dr. Steenbarger,

I'm having some technical problems following the numbers in the Trading Psychology Weblog discussion for this week.

Where you say "We now see 40% of NYSE stocks above their 50-day moving averages...", at StockCharts.com I'm getting, for $NYA50R, the value of 29% for Friday, not 40%.

Also, where you say "Among NYSE common stocks, we had 16 new 52-week highs on Friday against 7 new lows...", at BarChart.com those numbers seem to be 12 and 14, not 16 and 7.

The numbers that I'm accessing would make us a bit less optimistic, hence I write. Do I need new data sources?

-Mike O'Connor

Brett Steenbarger, Ph.D. said...

Hi ST,

Yes, it does keep markets interesting when patterns point in different directions. In this case, I'm interpreting the patterns as indicative of short-term weakness and longer-term strength.

Brett

Brett Steenbarger, Ph.D. said...

Hi Mike,

My NYSE data is taking into account operating company stocks only, not the full list of NYSE listed issues. I think that might be the difference.

Brett