A plethora of market ERs – we’ve seen this before

As we reach the end of March 2022, the volatility in the markets continues with large range days and varying volume levels.

When the market is in a trend, we might see 2 or 3 high Expert Ratings warning us of a potential change in direction. At the tail end of 2021 and the first 10 days of 2022, we had 3 down signals, the last of the 3 at 1-99 was on 1/10/22. The market moved down solidly to the 33280 level before rallying 2/3rds of the down move.

There was no up rating at the bottom as prices moved back up and one up rating early February that didn’t pan out. However, between 2/24 and 3/16 there was six signals, 5 of them up. That’s in only 14 trading days.

Between the 2/24 up signal and the 3/14 up signal there were 9 distinct bullish ER rules showing. There was also several that were duplicated bullish ER rules. Add to this 4 new distinct ER rules on the up signal 3/16, that adds up to the busiest ER cluster for a very long time.

Here are the first 9 distinct rules contributing the cluster of ratings

  1. The Money Flow Indicator has reversed and is now advancing. In this sideways market, this is read as a bullish indication that the market could move up from this point because of the inflow of funds.
  2. The 21 day stochastic has advanced and crossed the 20% line and the price phase indicator is also in- creasing. In this strongly downtrending market this is taken as a strong bullish signal suggesting an increase in prices.
  3. The price phase indicator is negative but volume accumulation has started to advance. This is a non-conformation that, regardless of the type of market, is a bullish signal which usually results in an upward movement of the market.
  4. The Money Flow Indicator has reversed and is now advancing. In this downtrending market, this is taken as a weak bullish signal that could indicate an upward movement in the market averages.
  5. The advance/decline oscillator has turned positive with volume accumulation already positive. In this strong downward trend this is read as a strong non- confirmation of the current trend which could be followed by a reverse in price direction to the upside.
  6. The new high/new low indicator has reversed to the upside. This is a reliable bullish signal that is often followed by an upward movement in prices. In this strong downtrending market a reverse in trend could start shortly.
  7. Volume accumulation percentage is increasing and the 21 day stochastic has moved above the 20% line. In this downtrending market, this is taken as a strong bullish signal that could be followed by an upward price movement.
  8. The new high/new low indicator has reversed to the upside. This is a reliable bullish signal that is often followed by an upward movement in prices. In this weak downtrending market an uptrend could start shortly.
  9. Intraday low prices of the market have declined to a 21 day low. But the volume accumulation percentage is positive. In this market, this is taken as a weak bullish signal that could be followed by an upward price movement.

So when was the last time we saw this many ratings so close together?

It happens in clusters particularly in advance of a move against the current trend of the market. The ER system is inherently counter trend. This chart shows some cluster from 2009 – 2011.

One example was way back at the tail end of 2007, when another cluster of buy signals occurred in a similar fashion. Following a 100 down on 11/01/07 the market gave ground until 11/08/07, the first of 6 buy signals in 13 trading days through to 11/28/07

The market ERs are not perfect but they provide us with key insights into the way the internals are performing.

Where does the market go from here?

This chart above was back at the start of the 2007/8 bear market. So how do the chart patterns compare between 2022 and 2007/8? The chart below, on the left shows the 2007/8 market through early December 2007 following a strong move up after the cluster of up signals. The right charts shows current market with a strong up move following the cluster of up signals

There are some similarities between current price action and the topping pattern back in 2007, one being the measured way this pattern is emerging over several months. The chart below is the same time periods compared but with the ERs showing.

The bear market that followed in 2008 is in the Chart below.

The market moved down in a series of measured moves until we reached late September 2008 and the sharp downturn occurred. No guarantees we’re in the same market, but keep an eye out for those counter trend cluster ERs if we are, they may provide warning of rallies.

WinWay TradingExpert Pro is programmed with the knowledge and insight of respected technical analysts, experts who have developed technical analysis indicators and systems for the last 50 years. The up/down timing signals issued by TradingExpert Pro are based on this knowledge. Since TradingExpert Pro’s timing signals are generated on a scientific basis, free of bias or emotion, you get a disciplined, objective approach to stock market timing.

The timing signals produced by the WinWay expert system are in the form of Expert Ratings. Behind each Expert Rating is a set of rules that combine the sound principles of technical analysis with the experience of market professionals. Since no single technical indicator works all the time, using indicators in combination increases their reliability. For example, a rule is developed that combines the readings of two or more indicators.

This rule is then more reliable than the reading of a single indicator. Within TradingExpert Pro are two knowledge bases, one specifically designed to issue market timing signals and the other designed to issue stock timing signals. Each TradingExpert Pro knowledge base contains approximately 400 rules, but only a few “fire” on any given day.

In the language of expert systems, those rules that are found to be valid on a particular day are described as having “fired”. Rules can fire in opposite directions. When this happens, the bullish and bearish rules fight it out. It’s only when bullish rules dominate that the Expert Rating signal is bullish, or when bearish rules dominate that the Expert Rating signal is bearish.

Market Timing Expert System signals through 1-21-22

Your WinWayCharts includes the AIQ Market Timing AI rating system. In this short video we’ll discuss the last 4 AI ratings on the Dow Jones Industrial average and examine the rules that fired to generate these signals.

AIQ TradingExpert Pro is programmed with the knowledge and insight of respected technical analysts, experts who have developed technical analysis indicators and systems for the last 50 years. The up/down timing signals issued by TradingExpert Pro are based on this knowledge. Since TradingExpert Pro’s timing signals are generated on a scientific basis, free of bias or emotion, you get a disciplined, objective approach to stock market timing.

The timing signals produced by the AIQ expert system are in the form of Expert Ratings. Behind each Expert Rating is a set of rules that combine the sound principles of technical analysis with the experience of market professionals. Since no single technical indicator works all the time, using indicators in combination increases their reliability. For example, a rule is developed that combines the readings of two or more indicators. This

rule is then more reliable than the reading of a single indicator. Within TradingExpert Pro are two knowledge bases, one specifically designed to issue market timing signals and the other designed to issue stock timing signals. Each TradingExpert Pro knowledge base contains approximately 400 rules, but only a few “fire” on any given day.

In the language of expert systems, those rules that are found to be valid on a particular day are described as having “fired”. Rules can fire in opposite directions. When this happens, the bullish and bearish rules fight it out. It’s only when bullish rules dominate that the Expert Rating signal is bullish, or when bearish rules dominate that the Expert Rating signal is bearish.

How’d the Santa Claus rally go?

December 20, 2021 we published this seasonality article on the Santa Claus rally https://winwaycharts.com/wordpress/tis-the-season-to-be-cautious/ In a nutshell we looked at the last 5 trading days of the year and the first 2 trading days of the next year. We looked back over the last 7 years to see if the rally holds up.

The Dow clearly did show an average rally of over 1% during those 7 trading days.

So how did things go this Santa Claus rally?

Here’s the DIA the ETF that follows the Dow during the 7 day Santa Claus rally. It made a nice gain of 2.9%. 2 days later things turned down.

Tis the Season to be Cautious

This time of year you might expect us to be thinking about the Santa Claus rally, but after the beating we’ve had the last few days, lets check and see how effective this really is.

What Is a Santa Claus Rally?

I lifted this description from Investopedia

A Santa Claus rally describes a sustained increase in the stock market that occurs in the last week of December through the first two trading days in January. There are numerous explanations for the causes of a Santa Claus rally including tax considerations, a general feeling of optimism and happiness on Wall Street, and the investing of holiday bonuses. Another theory is that some very large institutional investors, a number of which are more sophisticated and pessimistic, tend to go on vacation at this time, leaving the market to retail investors, who tend to be more bullish.

To test this in Expert Design Studio, I used the Seasonality3 ED built-in strategy. I set the Season Length days to 7 days to encompass the last 5 trading days of December and the first 2 days in the New Year.

By setting the date to 1/4/21, the rule looks back 7 trading days from January 4th, each of the last 7 years and gives us an approximate percentage return for each of those 7 days.

Some years with weekends and extra holiday days plus 252 is used as default trading days skew results a small amount. To compensate I also tested 10 trading days back from January 7. The results from the 7 days are below, I tested all the indices in my current database.

INDU is highlighted, this is the Dow 30 index. First it’s clear that in every year except for one, over the last 7 years the Dow has made gains in the Santa Claus period. The average gain Is over 1%. Not too bad for a 7 day trading period. BTW the results from the 10 days from January 7 were similar.

The NASDAQ on the contrary had 3 losing years out of the 7.

So next I decided to look at what ETFs are most likely to have a Santa Claus rally. Here’s the results using the 7 trading days back from Jan 4. This is the ETFs that had gains every year for the last 7.

The first 3 ETFS are all Gold related, the next two are real estate/REITs the last one is a bond fund. Hmm something to keep in mind.

Here’s GLD seasonal charts the right hand side of each year shows the Santa Claus rally clearly. The White line is the average of all 7 years.

Clearly no guarantees what will happen this year, but something to keep in mind.

Tis the season to be WinWayCharts – literally

Dear Traders

Happy Holidays or not given how the Markets tumbled the day US Thanksgiving. BTW, it was also the last full week of November.

Time for me to run my WinWayCharts seasonal filter on my top 2500 stocks

The filter is highly configurable and I can select which period of time, looking back from a given date to find a consistent price move up or down. I’m looking for it to repeat every year going back 7 + years.

I first came across the concept of seasonal consistency through Jay Keppel’s work JayOnTheMarkets.com and his books on Seasonal Stock Market trends. Many of you will have heard of the classic seasonal patterns like ‘Go Away in May’ or “the Santa Claus rally’. My WinWayCharts seasonal screener can find these type of events in individual stocks. Events that happen every year at the same time.

Here’s how the WinWayCharts Seasonal Screener works

How long do you usually hold a trade? I like to hold a trade for a month or less, that’s about 22 trading days.. So, I have cash available to invest Monday November 29th. All I need do is pick a date one month from that date and look for stocks that consistently made a profit over those 22 trading days, long or short, every single year going back the last 7 years. You can look back further but 7 seems to be pretty good consistency to me.

It’s that Simple

November 29th to December 29th, there were a handful of long stocks with seasonal patterns and the same on the short side. I liked the short side given the current market.

All these stocks lost money in every December for the last 7 years

I highlighted GRMN and TTEK as both on average lost over 4% in December for last 7 years.

Here’s a WinWayCharts 7 year seasonal chart of TTEK the white line is the average
Here’s a WinWayCharts 7 year seasonal chart of GRMN the white line is the average

Want to go long?

While there were no candidates in my US stocks, there were 3 UK stocks showed up. BRW-LON averaged 9.61% in December over 7 years. That’s impressive.

Here’s an WinWayCharts 7 year seasonal chart of BRW-LON the white line is the average 

Next time I’m going to start to look at the major markets in specific periods and see if we can identify seasonal patterns that are hidden under the radar of everyday noise.

How can I run a WinWayCharts Seasonal scan?

  • First download the scan from our server click here
  • Locate the file Seasonal 3 RD.EDS likely in your /download folder and move it to your /wintes32/EDS Strategies folder
  • Open WinWayCharts EDS from the Main Menu

  • Click File, Open and locate the /wintes32/EDS Strategies/Seasonal 3 RD.EDS file
  • The file is set for seasonal length of 22 days but you can change this to whatever length you wish

  • Remember the date you run the report, like in the example above is 12/31/2020, it looks back in this case 22 days, then it checks 12/31/2019 and looks back 22 days etc. There would be no point it setting the date to run the report to the current date as it would look back 22 days, and you’d have missed the seasonal candidate stocks move.

 

 

Rate Of Change With Bands

The EDS code based on Vitali Apirine’s article in the March issue of Stocks & Commodities magazine “Rate Of Change With Bands,” can be obtained by copying the below into a new  WinWayCharts EDS file, saving the file and adding EDS custom indicators on your Charts

!Rate Of Change With Bands 
!Author: Vitali Aprine, TASC Mar 2021 
!Coded by: Rich Denning, 01/11/2021 
!INPUTS: 
rocLen is 12. 
emaLen is 3. 
smaLen is 12. 
C is [close]. 
ROC is (C - valresult(C,rocLen)) / valresult(C,rocLen)*100. 
smaSqr is simpleavg(ROC*ROC,smaLen). 
ROCdev is sqrt(smaSqr). 
emaROC is expavg(ROC,emaLen). 
upROCB is ROCdev. 
dnROCB is  - ROCdev.

Code for the ROCB indicator is set up in the EDScode file. Figure 10 shows the indicators on a chart of Apple Inc. (AAPL). The red line in the first panel is the upper ROC band and the green line is the smoothed ROC. In the lower panel, the red line is the lower ROC band and the green line is the smoothed ROC.

Sample Chart

FIGURE 10:  The ROCB indicators are shown on a chart of Apple Inc. (AAPL). The red line in the first panel is the upper ROC band and the green line is the smoothed ROC. In the lower panel, the red line is the lower ROC band and the green line is the smoothed ROC.

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

Detecting High-Volume Breakouts

The importable  EDS file based on Markos Katsanos’ article in the April issue of Stocks & Commodities, “Detecting High-Volume Breakouts,” can be obtained on request via email to info@TradersEdgeSystems.com.

Excerpt “Is there anything more satisfying for a trader than capturing a huge breakout? The usual practice for breakout entries is to simply buy new highs. This method, when used in isolation, will often result in false breakouts. It is, therefore, better to wait for volume confirmation before entering the trade, as high-volume breakouts usually last much longer. In this article, I will show you how to detect breakouts using only volume, sometimes even before price breaks out, by introducing a new volume breakout indicator. “

The code is also available here:

 
!Detecting High-Volume Breakouts !Author: Markos Katsanos, TASC April 2021 
!Coded by: Richard Denning, 02/18/2021 
!INPUTS: 
period is 30. 
smoLen is 3. 
vpnCrit is 10. 
maLen is 30. 
V is [volume]. 

!FORMULAS: 
MAVol is simpleavg(V,period). 
MAV is iff(MAVol>0,MAVol,1). 
Avg is ([High]+[Low]+[Close])/3. 
MF is Avg - valresult(Avg,1). 
ATR is simpleavg(max( [high]-[low],max(val([close],1)-[low],[high]-val([close],1))),period). 
MC is 0.1*ATR. 
VMP is iff(MF > MC, V, 0). 
VP is sum(VMP,period). 
VMN is iff(MF < -MC, V, 0). 
VN is sum(VMN,period). EDSPN is (expavg(((VP - VN) / MAV / period),smoLen))*100. 
MAVPN is simpleavg(VPN,maLen).

Code for the VPN indicator is set up in the EDS code file. Figure 9 shows the indicator on a chart of Tesla Motors Inc (TSLA).

Sample Chart

FIGURE 9: AIQ. The VPN indicator is shown on a chart of Tesla Motors Inc. (TSLA).

—Richard Denning
info@TradersEdgeSystems.com
for AIQ Systems

New updated Market Chart Ticker

With the price of the Dow Jones 30 (ticker INDU) in your WinWayCharts reaching beyond 32760,  your Market Chart may be experiencing a spike in Charts. A new updated file for INDU is now available for you at www.aiqsystems.com/INDU.dta

Close all open WinWayCharts programs.  Click the link above and Save INDU.dta to c:\wintes32\tdata, say yes when asked to overwrite.  Once done, open Data Manager, click on Utilities, Rebuild Master Ticker List.

If have any questions please contact Support support@winwaycharts.com

TECH NOTE

The error is due to the theoretical maximum length of an environment variable is around 32,760 characters.

A “Magical” Strategy for DIS

OK, for the record, I have stood in enough long lines next to impossibly sweaty people (Full Disclosure: They likely feel the same way about me) to know that all of the talk of “Disney” and “Magic” is strictly for marketing consumption.  That being said – and despite the fact that you cannot attend the flagship property in sunny CA, and likely will not be able to for some time – there is something about “going to Disney” that still strikes a chord with a whole lot of people.

Of course, my interest here is more financial in nature.

Now the “rational” thing to do in the minds of most investors is to ask and answer some serious questions regarding “theme park attendance.” in the age of COVID-19.  Questions like “will attendance pick up anytime soon” and “will DIS continue to be an economic powerhouse if attendance does not return to pre-Covid levels?”

Here is a link to a factual, well-researched and well-written article noting that Disney World attendance as of 8/21/20, attendance was down 80% from a year earlier.  Scary stuff, right?  And the snap implication is fairly obvious – theme parks are suffering and may continue to do so for the foreseeable future.

But as I mentioned, my interest is more financial in nature.  And I tend to look at things from a slightly different angle than a lot of other people.  Part of that is because I have come to recognize that (like a lot of other people, but sadly unbeknownst to a lot of those same people) I (and they) am not very good at accurately answering “questions about the future”, such as those posed above about theme parks.

I read that theme park attendance is “down 80%” and instantly that voice in my head loudly issues that age-old “DANGER! WARNING WILL ROBINSON” alert and I feel the urge to scurry off in the other direction.  But fortunately, I have gotten pretty good at not overreacting to that initial warning and coming back for a second glance.

Consider Figure 1.  The date marked by the vertical line is August 21, 2020, i.e., the day that the news came out that “Disney World attendance is down 80%, that heavy discounting going on, that Disney stock is down for the year and that it is lagging the major stock indexes.”

Figure 1 – Disney stock (Courtesy WinWayCharts)

Since that “DANGER! WARNING WILL ROBNINSON” moment, DIS is up +34% in 4 months, versus +9% for the S&P 500 Index (FYI, DIS is now up 18% for 2020 vs. 14%+ for the S&P 500).

Are the financial markets a perverse beast, or WHAT!?

The “Real Magic” of Disney Stock

So, what the heck happened to make DIS stock burst higher even in the face of seemingly very bad fundamental news?  Well, long story short, October 1st happened.  Wait, what?  October 1st?  Surely it can’t be that simple!?

Here’s the thing: it probably should not be that simple.  And there is absolutely no guarantee that it will continue to be that simple.  But for the past roughly 6 decades…. it has been just about that simple.  Consider Figure 2.

Figure 2 displays the cumulative % gain for DIS stock held ONLY from October 1st each year through the end of May the following year, every year since 1962.

Figure 2 – DIS % +(-) during October through May (logarithmic scale)

An initial $1,000 investment in DIS stock held only October through May starting in 1962 is worth $108,512,237 as of 12/18/2020, or a gain of +10,851,124%.

Figure 3 displays the cumulative % gain for DIS stock held ONLY from June 1st each year through the end of September that same year, every year since 1962.

Figure 3 – DIS % +(-) during June through September (non-logarithmic scale)

An initial $1,000 investment in DIS stock held only June through September starting in 1962 is worth $44.86 as of 12/18/2020, or a loss of -95.5%.

The Upshot

Many investors will ask the obvious question of “Why does this work?”  And the most succinct answer I can proffer is “It beats me.”  Obviously, many investors will not be satisfied with that answer.  And that is perfectly OK by me.  As a proud graduate of “The School of Whatever Works” I tend to value “consistency” more than I do cause and effect.  Not everyone is wired that way and that’s OK.

Speaking of consistency, for what it is worth Figure 4 displays decade-by-decade results for the Oct-May period versus the Jun-Sep period.

Figure 4 – DIS decade-by-decade

The key things to note are that:

*The Oct-May period showed a pretty substantial gain during each of the 6 previous decades.

*The Jun-Sep period showed a gain during the 60’s but lost money in every subsequent decade

(Note 2020 results through 12/18 are included in the table but are not a part of the commentary above).

Summary

Clearly the Oct-May period has been pretty “magical” for DIS stock investors for a long time.  Will this continue to be the case in the future?  Ah, there’s the rub.  And as always, I must repeat once again my stock answer of “It beat’s me.”

But the real point is that in the long run investment success has a lot to do with finding and “edge” and exploiting it repeatedly.  Or as I like to say:

“Opportunity is where you find it.”

 

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.

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