- Posted by DynamicHedge on August 20th, 2014 at 1:44 pm
Despite all the public worries about the market, the $SPY is on the cusp of making a brand new 52-week high.
I ran a quick study of the 10-days following every 52-week highs of the last two years to see if there’s anything useful to trade around. The full report is at the bottom of the page but here’s what stands out to me.
1. Bull markets are built on “backing and filling”.
It’s clear from the Alpha Curves that the dominant patterns are for fresh highs to see some immediate follow thru and then retest support. This isn’t what happens every time, but it happens enough that the algorithm picked it out as the dominant pattern. This is what can make broad indices frustrating to trade during bull markets.
2. There is a slight long bias in the days following a 52-week high, but in the very short term there isn’t really an edge using it as a trading signal.
More trades win than lose but it’s hard to statistically distinguish this from zero (t-test isn’t high enough, p-value isn’t low enough). This is a factor that can separate a trading strategy that looks good on the surface from one that is truly robust.
3. There is a clustering effect of new highs that can be summed up in one word: momentum.
This is a little bit harder to qualify, but in the same way that new 52-week highs aren’t the greatest thing for short-term traders, they are a strong signal for long-term traders. This study looked at only 10-days, but a 20-day study is a completely different story (significant long bias). It’s also good to note the opposite. If you are not seeing follow thru in the longer-term time frames it may be a sign that the market is changing.
The full report is below. All data provided by https://www.marketmemory.com/.
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DynamicHedge is an equities, futures and derivatives trader based on the West Coast. He runs a long/short opportunistic relative-value strategy within a proprietary trading group. More
- 3 Important Things To Watch For At 52-week Highs
- Big Down Days: A Lesson from Recent History
- Market Cap Arbitrage: SPY vs IWM
- How to Deal with High Frequency Nowcast Economic Data
- An Almost Impossible VXX Rally
- 4 Misconceptions about Dow Theory
- Gap Personality: When to Chase and When to Hold Off
- Sophisticated versus Effective
- Three Month Consolidation Break
- Efficient Markets Believe In Trends