On February 17th, we got a signal from Matt’s Breadth Indicator (aka “The 30% Up/Down in a Quarter Diffusion Index”…can you see why I just called it after myself?) to get the heck out of the market. Or at least to put on our Danger Spectacles and tighten your Volatility Helmets. You would be excused a week later for asking what the problem was. The problem of course manifested itself shortly thereafter. We are now into a second period of closing below our initial “get out!” period.
See? The indicator told you so. Even when the S&P 500 seemed to be saying otherwise.
Does this mean the markets are going to drop to the ground like some bunker-busting price-bomb? Er…I dunno. It’s just an indicator, not a prognosticator!
In the last post (here), I examined what happened after a stock moved down a significant multiple of its previous day’s Average True Range (ATR20 in this case). Stocks tended to have up days on day 1 and days 3-5, with a down day on day 2 as an average. What about bursts upward? Are they the opposite? Would they make a good shorting opportunity?
Continue reading Pop or Drop part 2: Big Moves Upward
Above: long-exposure nighttime shot of oil rigs off the coast of California.
Strange things happen to options and futures on fairly predictable dates. Options expiration dates, contract settlement dates…these are trading days where – and this is just my theory – some traders just want to get out of a trade by any means necessary. So it can, in theory, lead to behaviors that can’t easily be arbitraged away. Best theory I’ve had today. Continue reading Settle For Oil
The indicator (more info here) has turned red. It’s interesting to see the divergence between the S&P 500’s positive direction, and the indicator, which is staying solidly below the threshold.
When the indicator turns yellow, it means hold the course but be aware things might be getting dicey. The indicator took a significant drop over the weekend, approximately 10 points.