If nothing else the markets sure are interesting.
In Figure 1 below, Rob Hanna of www.QuantifiableEdges.com highlights those rare occasions when the S&P 500 Index closed within the lowest 25% of its daily range for four consecutive trading days, and how the index performed over the following 5 trading days.
The bottom line: 15 of 16 signals (94%) saw the S&P 500 Index advance during the 5-trading day period after each signal.
Figure 1 – SPX +(-) during 5 trading days after closing in lowest 25% of daily range for 4 consecutive days (Courtesy: www.QuantifiableEdges.com)
Unfortunately, this signal does not occur often enough to use as a standalone strategy. However, information like this can be very helpful as “weight of the evidence” for a trader.
To wit:
*The latest signal fired at the close on 10/21/20
*The S&P 500 is lower today as I type
This suggests one of two things. Either:
*This signal will not pan out
*We may be looking at a very good short-term buying opportunity
I am not offering any opinions here, just observations. But history suggests that the market could be higher by the close on 10/28.
Silver
Interestingly, the exact same signal (4 straight days closing in the lowest 25% of the daily range) applied to silver give a very different result. Figure 2 displays the cumulative $ +(-) for holding a long position in silver futures for 1-day after silver closes 4 straight in the lowest 25% of its daily range.
Figure 2 – Cumulative $ +(-) if Long Silver futures for 1-day after 3 straight closes in lowest 25% of daily range; 1970-2020
As you can see, the results are awful. To put it another way, a trader who sold short silver futures on the 4th straight day of closes in the lowest 25% of the daily range would have made some decent money (albeit, not very often and over a long period of time).
For the record:
Figure 3 – Silver futures performance during 1 trading day after 4 straight closes in lowest 25% of daily range
Silver did show a gain 42% of the time, however, clearly the average DOWN was significantly worse than the average UP.
Figure 4 shows the dates.
| Date | Silver $ + (-) Next Day |
| 9/15/1970 | 90 |
| 8/31/1971 | 95 |
| 3/7/1973 | 330 |
| 4/10/1974 | (650) |
| 11/1/1974 | 685 |
| 3/29/1976 | 300 |
| 7/30/1976 | (875) |
| 8/2/1976 | (270) |
| 8/3/1976 | 485 |
| 6/10/1977 | (630) |
| 3/22/1978 | 180 |
| 6/26/1979 | (125) |
| 6/27/1979 | (435) |
| 11/10/1980 | (900) |
| 2/25/1983 | (12,850) |
| 2/28/1983 | 0 |
| 3/1/1983 | 2,850 |
| 6/3/1983 | (2,500) |
| 6/6/1983 | (1,700) |
| 10/3/1983 | (650) |
| 10/4/1983 | 1,200 |
| 7/17/1984 | 1,050 |
| 12/18/1984 | (25) |
| 12/19/1984 | 100 |
| 4/15/1985 | (425) |
| 6/19/1987 | (2,250) |
| 6/22/1987 | 875 |
| 7/26/1988 | 400 |
| 11/18/1988 | (275) |
| 8/30/1989 | (225) |
| 8/31/1989 | 150 |
| 12/29/1989 | (100) |
| 1/2/1990 | (165) |
| 7/24/1990 | 75 |
| 7/25/1990 | 100 |
| 7/25/1991 | 125 |
| 11/30/1994 | 50 |
| 5/26/1999 | (575) |
| 5/27/1999 | (225) |
| 5/28/1999 | 450 |
| 8/17/2000 | (140) |
| 8/18/2000 | 50 |
| 11/21/2000 | (10) |
| 2/10/2003 | (150) |
| 12/27/2011 | (7,900) |
| 12/28/2011 | 3,125 |
| 2/19/2013 | (4,425) |
| 2/20/2013 | 575 |
| 3/25/2014 | (1,225) |
| 3/26/2014 | (175) |
| 11/6/2015 | (1,050) |
| 5/2/2017 | (1,825) |
| 5/3/2017 | (750) |
| 3/4/2019 | 250 |
| 3/13/2020 | (8,850) |
Figure 4 – Silver futures $ +(-) 1-day after 4 consecutive closes in lowest 25% of daily range
Summary
Is any of this actionable? That’s not for me to say. All I said at the outset was that the markets are “interesting”.
I rest my case.
See also Jay Kaeppel Interview in July 2020 issue of Technical Analysis of Stocks and Commodities magazine
See also Jay’s “A Strategy You Probably Haven’t Considered” Video
See also Video – The Long-Term…Now More Important Than Ever
Jay Kaeppel
Disclaimer: The information, opinions and ideas expressed herein are for informational and educational purposes only and are based on research conducted and presented solely by the author. The information presented represents the views of the author only and does not constitute a complete description of any investment service. In addition, nothing presented herein should be construed as investment advice, as an advertisement or offering of investment advisory services, or as an offer to sell or a solicitation to buy any security. The data presented herein were obtained from various third-party sources. While the data is believed to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. International investments are subject to additional risks such as currency fluctuations, political instability and the potential for illiquid markets. Past performance is no guarantee of future results. There is risk of loss in all trading. Back tested performance does not represent actual performance and should not be interpreted as an indication of such performance. Also, back tested performance results have certain inherent limitations and differs from actual performance because it is achieved with the benefit of hindsight.
