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Are Trend Days Passé?
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Are Trend Days Passé?

by The MoleMarch 4, 2012

Over the weekend the old Convict sent me a pretty interesting write up discussing an increasing amount of trend day signal failures. If you are a sub then you know that this strikes very close to home as my own system sends out a trend day alert to all of you each morning at 10:15am EST. If you don’t know what a trend day alert is then please point your browser to our handy cheat sheet.

Chart courtesy of Quantifiable Edges.

The left side of this chart shows us the profit curve of a system trading trend days between January 2006 and April 2009. The right side of the chart shows the profit curve of the very same system between May 2009 to the present. We’ve gone from a pretty juicy edge to something I would consider a coin flip. And I think most of us would agree with the author’s conclusion – quite obviously since ca. late spring of 2009 those trend day alerts have been a hit and miss affair. The author opines that something has obviously changed – he doesn’t know what and neither does he care. As a quant his main job is to weed out trading rules which are not applicable anymore in today’s fast shifting market dynamics.

I cannot argue with the data – so does that mean that trend day alerts are passé and that you should ignore them going forward? Well, on that end I do approach trading a little bit differently than some of those quant boys. Let’s look at what makes a trend day in the first place.

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More charts and cynical commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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Here’s the chart that actually sends you guys the daily alerts – we are looking at two consecutive trend days, one on 2/29 and the next one on 3/1. On the second lane below the spoos you see me plot the actual NYSE TICK via a simple line chart. Behind the scenes my indicator grabs the first 45 minutes of the tape and then calculates the tick ratio – meaning how many ticks (of the NYSE TICK) plotted below versus above the zero mark. Pretty straight forward – it’s not brain rocketry.

Rather apparent on the left half of the panel is the fact that the first trend day alert was a complete and utter failure. It’s almost as if the HFTs were banging the tape higher intentionally just to turn the tape slightly before the measurement time at 10:25am EST (the chart is in PST – so add three hours). The second half also shows a bit of monkey business and it admittedly wasn’t a hugely profitable, day but in general March 1st had all the call signs of a proper trend day.

Now here’s where it gets interesting – this is a snapshot of the Zero Lite spanning those same two days. And it shows rather clearly that there’s some trouble brewing early in the first day. On the second there’s a lack of participation – but at any rate the signal line remains above the mark throughout the entire session. Again, not a great day but the Zero Lite was minimally supportive of a possible trend day.

Lesson learned: when trading a TrendDay alert make sure you keep an eye on the Zero Lite!

Now let’s zoom out by quite a bit – here’s the daily Zero which gets updated once a day. I expanded the panel a little to capture the entire timeframe between April 2009 to the present. Actually we have two Zero panels here – the one on top is smoothed and the raw signal is on the bottom. As you can see there are striking differences in participation and momentum when comparing ‘melt up periods’ (i.e. winter/spring 2011 and winter 2012) to ‘shake out periods’. The latter show a lot more signal strength while the former are relatively flat. I think it’s a pretty good expression of quantitative easing at work and if you know the inception/expiration dates of both QE periods then you’ll realize that they match up very well – I actually presented some pertinent evidence in the past.

Now this chart is a bit experimental – my main difficulty is that trend days do not occur at regular intervals, rather they occur intermittently. To simplify things let’s assume a standard gaussian distribution which admittedly is being presumptive to say the least. So forgive me when I had to use a bit of creative liberty when mapping Rob Hanna’s profit curve to my daily Zero, but that didn’t keep me from trying. A bit of fuzzy logic here and there often levels the path to putting things into proper context.

In essence I think this presents a fairly reasonable case however and I would very much enjoy Rob’s input on this. Basically what I did here was to extract ‘performing periods’ and ‘non performing periods’. The PPs are framed in green while the NPPs are framed in red. I can say via personal observation that we are smack middle in a NPP right now and it’s one that started late last year, right before the onset of the Santa Rally.

I also spoke to the old Convict over the weekend and he agreed that last winter/spring felt quite a bit like what we’ve seen since December – it’s that 2011 analog idea again. Anyway, both of those periods may just correlate with the small signals we are seeing on the daily Zero, which after all is a participation/momentum indicator. No participation – more opportunity to bang the tape all over the place – simple.

Bottom Line: I don’t think the trend day signal is dead for good, rather it seems to me that it does not apply very well (i.e. almost blindly) during periods of quantitative easing with the purpose of lifting equities artificially. However, when correlated with the intra-day Zero Lite indicator then early warning signs are fairly easily discernible as evidenced by the example above. In essence – during a bonafide UP trend day you never want to see the signal line dip below the mark for more than 10 minutes or so.

If you are not a Zero sub then you may at least keep an eye on VWAP, which should not be breached at all – if possible dips do not even touch VWAP. It’s the inverse situation on bonafide DOWN trend days – you do not want to see more than one or two quick signal spikes above the mark and similarly any attempts to breach above VWAP should fail.

I don’t have much to add on the long term front – all the charts I posted in the past two weeks remain valid. Make sure you keep an eye on the spoos overnight in consideration of Friday’s inside inside candle on the SPX. The high was 1374.53 and the low of the day was at 1366.42. Fair value is about $1.15, let’s round it up to $1.25 and then adjust it to the spoos. Ergo we get a high of 1373.25 and 1365.25 which are your two inflection points.

And as ‘coincidence’ may have it we have two matching Net-Lines on the hourly spoos chart – this should make it easy to structure your trades. To quote Volar – happy unbiased trading! 🙂

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Cheers,


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
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  • Anonymous

    Thanks, really helpful to me.

  • http://practicalt.blogspot.com/ Darth_Gerb

    weakness currently.
    look for support at the bottom channel.
    maybe there is some lift in store till 11am.

    http://i43.tinypic.com/21loeiw.png
    -DG

  • Anonymous

    We have breached the inside day low signal, admittedly on an overnight signal.  

  • https://evilspeculator.com molecool

    🙂

  • Anonymous

    aud.jpy is also moving pretty strongly here (southbound).  This one has had a heck of a run this last while.   

  • Anonymous

    AUD/JPY is taking a beating, but I’m more interested in whether GBP/USD can break that daily NLSL at 1.5810.

  • Anonymous

    Cool video of the pit feed during the flash crash

    http://www.youtube.com/watch?v=E1xqSZy9_4I&feature=youtu.be 

  • Anonymous

    Great post mate, motherfuckers need to read, and reread.

  • https://evilspeculator.com molecool

    I remember that day – it was fun in a scary way – felt a bit like skydiving.

  • https://evilspeculator.com molecool

    I love it when you talk rough to me, big boy 😉

  • Fibz

    MSM is going full retard trying to “baffle them with bullshit” lately.

  • spicestory

    hourly /ES after hours is below inside bar sell triggered for four full hours and now attacking
    daily NLSL 1361.50

  • spicestory

    AUD/JPY is also lurking around its daily NLSL @86.69

  • Anonymous

    Freaking weird…Mr. Margin my short was triggered in that pair GBP/USD. lol That is another pair along with the EUR/USD that I tend to stay away from. But I made an exception this time for GBP/USD . My AUD/JPY short position at 87.70 is still running and I will keep it running. I placed the stop loss at b/e. AUD/JPY may be a candidate for being a flag ship trade for me at this pace.

  • Anonymous

    http://content.screencast.com/users/AMCabrera/folders/Jing/media/c2969a35-1d99-48ab-8d9e-73da0f476bb1/2012-03-05_0735.png
    a very important issue here. It is staying at the dma. In order for me to keep it has a flagship I have to see it break this level. If it does not I will take profit by afternoon.

  • Schwerepunkt

    I thought the pit guy was going to lose it at the end. I’ll bet he went for a cigarette (or something stronger) break once things stabilized.

  • labdude

    Thanks for that posting–the way the commentator was talking–reminded me of the Kentucky Derby–LOL, the K-Derby of the stock flash crash. 

  • Anonymous

    which MF’s would that be?

  • Schwerepunkt

    So, do we have a confirmed RTV sell signal, or are we waiting for ES to go below 1356.75? 

  • Anonymous

    If I recall correctly, Scott likes to use cash SPX for the signal, but trade /ES. I could be wrong.

  • Anonymous

    That alert on the hourly AUDJPY looks like a good one so far at least.  The tide seems to be receding.  If it gathers some downward momentum, there is quite a long way to go on this one.

  • Anonymous

    AAPL still being pushed higher …. looks like the market might be propped up by this giant for a while yet.

  • Anonymous

    May the trend we with you…

    It doesnt need rocket scientist to tell us that we are at an important juncture

  • Anonymous

    $ZNGA taking a beating after flying high for the last couple of days. Probable daily Evening Star. Seems like the $FB IPO effect is wearing off. The first cracks in the tech sector maybe?

  • raised_by_wolves

    I took it the second time breached.

  • Anonymous

    looks like most coal stocks are outside their lower daily BB.  perhaps a nice bounce from these oversold levels.  going long ANR

  • http://practicalt.blogspot.com/ Darth_Gerb

    ah, nothing like breaking the E-mini up channel.
    off to work.  Ciao.

  • raised_by_wolves

    And I’m going back to bed. Cheerio.

  • Anonymous

    Taking NZD/USD off table. Nice kill. It is looking more and more like I will just leave the AUD/JPY do its thing. Of course I still have the USD/ZAR on the table long.

  • Joe_Jones
  • Anonymous

    Quite some vol in GC and some interesting hourly candles. Seems sandwiched between 1712 and 1694 right now. A break to either side should be interesting. I took the inside day setup at 1704.

  • Schwerepunkt

    Butt! Euro going the other way.

  • Anonymous

    I would say the euro is a currency that is up in the air. I would not over think it too much. Euro is not in a good position.

  • Kudos

    Treasuries not confirming move

  • Anonymous
  • Joe_Jones

    Agree, but treasuries and bonds have been acting weird lately. They used to be the trade to be in during risk off moves but that correlation seems to have died somehow.

  • Schwerepunkt

    I dunno, seems like the fourth touch and go?  No?

    http://screencast.com/t/64MxbVEeFP9b 

  • Anonymous

    Had GC and AUDJPY both short.  I closed out GC at a small profit – don’t like the way Euro is going in the opposite direction.  I think we could be at an interesting turning point for AUDJPY.  Aim to stick that one out a while unless the market proves me wrong.

  • Joe_Jones

    Compared to AUDJPY, EURUSD took a beating the last few days. A bit of consolidation should be expected me thinks

  • Joe_Jones

    I haven’t seen the 5 min ZL this weak in a while. The move could have legs in the last 2 NYSE trading hours. First I want to see a touch and a clear rejection of VWAP.

  • Anonymous

    is that near touch 5 mins ago good enough for you? still need clear rejection, though….

  • Anonymous

    http://content.screencast.com/users/AMCabrera/folders/Jing/media/c3f4131f-0be7-4791-8f73-705b721cb6bd/2012-02-29_1935.png
    Sorry meant to post it here Fibz..This is what I was warning about. I know for sure I intend to stay on this ride for a bit more. What I mean is of course the fear of “is now a good time to go long” for those who either A. shorts finally not bleeding so bad or B. Those that have been waiting for a opportunity to go long.

  • Anonymous

    Aapl is (finally) showing some signs of mortality.  Size of sell-off there is going to dampen any attempt by ES to rally here.  But I concur zero (so far) not encouraging re-loading the short gun here just now.  

  • Anonymous

    EUR/JPY is in an interesting configuration right now with hourly resistance in the form of 50 and 200-h SMA above and the 100-h SMA 40 pips higher. I don’t like the daily candle to far, but I’m selling the rip right here.

  • Schwerepunkt

    What happened there? Netanyahoo fart or something?

  • Anonymous

    http://content.screencast.com/users/AMCabrera/folders/Jing/media/59433b02-f8c2-4935-94fc-b8191625cf11/2012-03-05_1120.png
    Also the interesting move that I saw  on Friday. I didnt think much more of it since the markets were about to close. Looks like it turned out to be interesting.

  • Anonymous

    Potential div on 5 min setting up. Not buying it because of the signal strength.

  • Joe_Jones

    Yep watching it closely as well. Together with zero fx

  • https://evilspeculator.com molecool

    Guys, tell me you took that entry last night!!

  • https://evilspeculator.com molecool

    It’s been ages since we got a 1.5 signal – nice 🙂

  • Anonymous
  • https://evilspeculator.com molecool

    Damn it – all those years of night school were for nothing then!

  • Anonymous

    🙂

  • Anonymous

    Yes, remaining short right now. RTV in place and bucky had a nice stop run and moving higher:)

  • Anonymous

    Looks like we almost touched the acceleration line on the daily SPX.

  • Anonymous

    http://content.screencast.com/users/AMCabrera/folders/Jing/media/d71b7d00-3ddb-4b20-8327-8603202d8c3c/2012-03-05_1138.png
    Getting closer to the line that will matter most. Depending on quickly we breach this, I could see my correction target within this week.

  • Anonymous

    Potential shit hitting fan right now:)

  • Joe_Jones

    Agree. This 5 min candle is critical.

  • Joe_Jones

    SHTF aborted now it seems. Let us see what happens at the 5 min 20 sma (SPX)

  • Anonymous

    Psssssss! Stick a fork in it! Added puts here.

  • Joe_Jones

    Well it is to hit the fan, it needs to do it now, otherwise we are looking for some boring tape for the next 2 hours at least

  • Anonymous

    Hey, don’t forget to keep track of the trend on the bottom hourlyZL  

  • Anonymous

    Hourly top panel is showing direction:)

  • Joe_Jones

    You are right. 

  • Joe_Jones

    Here we go again. Well played! 😉

  • Anonymous

    http://content.screencast.com/users/AMCabrera/folders/Jing/media/9d84f5e2-4c5f-43ef-95f1-f7b0194891bd/2012-03-05_1217.png
    I can imagine that some people think Im a crazy MOFO. But this pair never broke higher. Another confidence booster for my shorts.

  • Anonymous

    Rut trying to stage a comeback but to weak.

  • Anonymous

    http://content.screencast.com/users/AMCabrera/folders/Jing/media/fcf84361-f447-4450-a374-463628e04886/2012-03-05_1223.png
    I have entered a short for the GBP/USD. Only because of that cross with the BB. That is very rare to see on Daily chart and very good clue for a quick 100 pip profit. Caveat of course I have only entered 10,000 units.

  • Anonymous

    Watching 1358 (20ma on the daily) SPX, loose that and more downside IMO.

  • Joe_Jones

    watch AAPL today. It seems to lead moves

  • http://pulse.yahoo.com/_IF7HINHIP5ITYT6TDHACMWJUXQ Huisok

    you get a gold star.

  • http://pulse.yahoo.com/_IF7HINHIP5ITYT6TDHACMWJUXQ Huisok

    RUT needs to close below 800 to get the bear party started.

  • Anonymous

    SMH down over 2%:)

  • Anonymous

    Yep, hourly top panel giving it up:)

  • Anonymous

    Yeah that pop out of Fridays pennant turned out was a head fake
    It trapped a good number of new longs chasing it.

  • Anonymous

    RUT is not giving up…. Hmmm

  • Joe_Jones

    Looks like bots came back from lunch

  • Anonymous

    Cannot give those bulls an hourly greeny:)

  • Anonymous

    Yeah Ive been looking at that too. Pushed thru lower BB then reversed with
    the support of the hourly BB’s which are getting tight

  • Joe_Jones

    Check out 5 min candles on AAPL: Whack!

  • https://evilspeculator.com molecool

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