Statistical Odds For Week 2-2019

It’s insane how time flies. We barely packed up our Christmas decorations and before you know it’s mid-January already. So late last week we saw the beginnings of a possible pull back off yet another all time high in equities. Let’s explore the odds of a continuation but first here’s a quick glance at the E-Mini futures:

The formation looks pretty scary (i.e. an expanding triangle) with quite a bit of downside potential, but unless ES 3260 is breached there is little chance of a meaningful correction.

See how realized volatility has been dropping over the past few sessions. I don’t think this condition is going to remain for much longer. So this may actually be a long opportunity with a stop < ES3260. Nobody in their right mind would go long here which is why it may just work.

Caveat: It’s a lottery ticket so if you take this entry don’t risk more than 0.25% of your assets.

Okay so let’s run the stats. Sharpe Ratio on week #3 shows us a minor positive bias – strangely week #4 (with MLK day on Monday) is when things are supposed to start picking up again.

Percent weekly has us in coin flip territory.

The historical runner up for week #3 shows us a bit more detail and I don’t like it. On average we end up in the plus but when momentum turns southward it seem to trigger pretty significant reversals.

Here’s the histogram which shows us a good number of outliers beyond -2% and even pushing below -5%. All in all I’d remain cautious ahead of MLK day – a market take down before the holiday seems just too juicy to pass up.

Before I run here are this week’s stock victims for my intrepid subs:

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