Hey Traders!
My blog has moved to a new site, MarcheseFinancial.com, so click the link to visit it! The site has many new features, so be sure to follow it, and read the About Me page to understand what it is all about!
Julian
Thursday, July 12, 2012
Wednesday, July 11, 2012
Monday, July 9, 2012
Stock Market Behaviour, Is There An Edge?
Hello Traders!
In this post I am going to go over a "personality trait" of the stock market that I am sure most of you have observed or are very familiar with. The reason I am going to discuss this trait of the stock market is because I see many traders that may understand this phenomena, yet do not put it to use, or use it as a trading indicator. I think it is this trait that can hurt traders quite badly over the long run, if it is not understood or put into practice.
The stock market is a fear driven market. In other words, the stock market is usually the first place where market participants will pull their money in the event of economic uncertainty. This is a fact, and is proved by how the stock market falls much faster than it rises. In other words, the stock market is most prone to downside panic, as opposed to a "crash up".
Over the long run, stock prices do rise... this has been proven by more than a century of impeccable returns. Yes there are always times of draw downs, and long choppy sections (where we are today), but over the long run, because of how capitalism works, I think it is safe to say that the market will be higher 20 years from now.
Any long time watcher of the stock market will begin to notice the personality of the stock market. It is the most unique personality of any market out there in my opinion. Here are some of the traits that I have observed:
1. The stock market rises most of the time.
2. When the stock market rises, it is typically much slower than falls.
3. When the stock market falls, it is typically much faster and sharper than rises.
4. After significant rises or falls in the stock market, rotational action typically arises.
5. Low volatility stock market rises are slow, but relentless.
These 5 points give us 3 different trading environments in the stock market. An overall rising market, an overall down trending market, or correction, and a rotational environment. Each of these environments have different personalities, and should all be traded differently.
For an overall rising market, it is usually always best to just buy small pull-backs! Don't even try to short a grind higher (as evident by most of the last 3 years) as the market's personality during this type of activity is clearly one-sided. The stock market always has an upside bias, and when volatility is low, sell-offs are infrequent. Thus for overall up trends, I would never try and fade it, until there is confirmation of a different environment.
For an overall down trending market, volatility is higher, and the environment is completely different. Fading sell-offs typically works in down-trends, since short-covering rallies are so vicious, and high-volatility brings over-extension both ways. Thus for overall down trends, fading rallies and fading sell-offs are in my opinion the best strategy.
For an overall rotational market, fade everything until the market breaks out. The stock market is one of the most rotational markets we know of, and so especially in a choppy market, it is best to fade everything.
So what does this give us?
1. UP TRENDING MARKET: Go with the trend.
2. DOWN TRENDING MARKET: Fade sell-offs, and rallies (typically you want to fade rallies more)
3. CHOPPY MARKET: Fade everything.
Although this may seem trivial, it is definitely something for every trader to understand, and put to use. Always keep in the back of your mind what type of stock market environment we are in, and trade accordingly.
Hope this helps!
Julian
In this post I am going to go over a "personality trait" of the stock market that I am sure most of you have observed or are very familiar with. The reason I am going to discuss this trait of the stock market is because I see many traders that may understand this phenomena, yet do not put it to use, or use it as a trading indicator. I think it is this trait that can hurt traders quite badly over the long run, if it is not understood or put into practice.
The stock market is a fear driven market. In other words, the stock market is usually the first place where market participants will pull their money in the event of economic uncertainty. This is a fact, and is proved by how the stock market falls much faster than it rises. In other words, the stock market is most prone to downside panic, as opposed to a "crash up".
Over the long run, stock prices do rise... this has been proven by more than a century of impeccable returns. Yes there are always times of draw downs, and long choppy sections (where we are today), but over the long run, because of how capitalism works, I think it is safe to say that the market will be higher 20 years from now.
Any long time watcher of the stock market will begin to notice the personality of the stock market. It is the most unique personality of any market out there in my opinion. Here are some of the traits that I have observed:
1. The stock market rises most of the time.
2. When the stock market rises, it is typically much slower than falls.
3. When the stock market falls, it is typically much faster and sharper than rises.
4. After significant rises or falls in the stock market, rotational action typically arises.
5. Low volatility stock market rises are slow, but relentless.
These 5 points give us 3 different trading environments in the stock market. An overall rising market, an overall down trending market, or correction, and a rotational environment. Each of these environments have different personalities, and should all be traded differently.
For an overall rising market, it is usually always best to just buy small pull-backs! Don't even try to short a grind higher (as evident by most of the last 3 years) as the market's personality during this type of activity is clearly one-sided. The stock market always has an upside bias, and when volatility is low, sell-offs are infrequent. Thus for overall up trends, I would never try and fade it, until there is confirmation of a different environment.
For an overall down trending market, volatility is higher, and the environment is completely different. Fading sell-offs typically works in down-trends, since short-covering rallies are so vicious, and high-volatility brings over-extension both ways. Thus for overall down trends, fading rallies and fading sell-offs are in my opinion the best strategy.
For an overall rotational market, fade everything until the market breaks out. The stock market is one of the most rotational markets we know of, and so especially in a choppy market, it is best to fade everything.
So what does this give us?
1. UP TRENDING MARKET: Go with the trend.
2. DOWN TRENDING MARKET: Fade sell-offs, and rallies (typically you want to fade rallies more)
3. CHOPPY MARKET: Fade everything.
Although this may seem trivial, it is definitely something for every trader to understand, and put to use. Always keep in the back of your mind what type of stock market environment we are in, and trade accordingly.
Hope this helps!
Julian
Friday, June 29, 2012
Oil Up Huge Today... Any Edge?
Hey Traders,
Oil is up by a significantly large amount today. Let's look at what typically happens after such a surge (tested since 2002):
This study is showing short-term weakness statistically, with the most bearish outlook in the next 2 weeks (10 trading days). However, the price of oil has been down large over the past 2 months. Let us see if factoring that in has any significant relevance:
You can see it definitely does not change it for the better! This study checks for 5% or more up days in oil, when the overall trend is significantly down. This shows a heavy downside pressure in the next 2 weeks. Albeit, most of these occurrences were in the decline of 2008, so you must take that into consideration.
Hope this helps!
Julian
Oil is up by a significantly large amount today. Let's look at what typically happens after such a surge (tested since 2002):
This study is showing short-term weakness statistically, with the most bearish outlook in the next 2 weeks (10 trading days). However, the price of oil has been down large over the past 2 months. Let us see if factoring that in has any significant relevance:
You can see it definitely does not change it for the better! This study checks for 5% or more up days in oil, when the overall trend is significantly down. This shows a heavy downside pressure in the next 2 weeks. Albeit, most of these occurrences were in the decline of 2008, so you must take that into consideration.
Hope this helps!
Julian
Strong Days In A Medium Term Market Pullback (S&P 500)
Good Morning Traders!
It looks like we are going to have a very strong up day today, in an overall weaker market (in a much longer-term uptrend). Here's a study I ran for looking for similar occurrences:
Now you might ask, wait a minute, it looks like today we might close ABOVE the 50 day moving average, why would you include today as a potential opportunity from this test? The main reason is because the filters we have on (below 50, above 200), are just that. We are not assuming that the 50 day and 200 day are magic numbers, we are just assuming that if the market is above the 200 day yet below the 50 day, we are typically in a medium term pullback, in a longterm uptrend (which is the case today). We are just looking for similar occurrences.
In the end it appears that this study is averaging further movement higher in the next month (out of 90 data points, the market has been higher a month out after a day like today 70% of the time). Usually days like this signal a change in overall market sentiment.
If anyone is looking at a specific market pattern and would like me to study it and its average returns, feel free to comment on this blog!
Hope this helps!
Julian
It looks like we are going to have a very strong up day today, in an overall weaker market (in a much longer-term uptrend). Here's a study I ran for looking for similar occurrences:
Now you might ask, wait a minute, it looks like today we might close ABOVE the 50 day moving average, why would you include today as a potential opportunity from this test? The main reason is because the filters we have on (below 50, above 200), are just that. We are not assuming that the 50 day and 200 day are magic numbers, we are just assuming that if the market is above the 200 day yet below the 50 day, we are typically in a medium term pullback, in a longterm uptrend (which is the case today). We are just looking for similar occurrences.
In the end it appears that this study is averaging further movement higher in the next month (out of 90 data points, the market has been higher a month out after a day like today 70% of the time). Usually days like this signal a change in overall market sentiment.
If anyone is looking at a specific market pattern and would like me to study it and its average returns, feel free to comment on this blog!
Hope this helps!
Julian
Thursday, June 28, 2012
S&P (SPY) Historical Test
Hey Traders,
Below is a study I've done on the S&P 500, through SPY, testing back to 1993.
The S&P 500 has pulled back roughly 4% in the last 50 days (since the April top), is below the 50 day moving average, but above the 200 day moving average (indicating short-term bearish, but long-term bullish). Over the last 19 years, this occurrence has been statistically bullish for the S&P 500, specifically 25 days out (roughly a month).
Just more information to add to your toolbox when making a decision!
Julian
Below is a study I've done on the S&P 500, through SPY, testing back to 1993.
The S&P 500 has pulled back roughly 4% in the last 50 days (since the April top), is below the 50 day moving average, but above the 200 day moving average (indicating short-term bearish, but long-term bullish). Over the last 19 years, this occurrence has been statistically bullish for the S&P 500, specifically 25 days out (roughly a month).
Just more information to add to your toolbox when making a decision!
Julian
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