Monday, December 5, 2016
Joined Nov 11, 2007
1,458 Blog Posts

40 Days Without a 1% Pullback: Bullish or Bearish?

Today, 2.27.12, marked the 40th day since SPY has had a pullback greater than 0.99%. Is this setup bullish or bearish over the intermediate term?

The Setup:

Buy SPY at the close if

  • today is the 40th day since a pullback greater than 0.99%
  • sell the position X days later

No commissions or slippage included. All SPY history used.

The Results:

Pretty interesting, eh?

There were 15 instances of this setup.

The SPY Buy-n-hold results were generated by dividing the SPY history into 50 bar segments and then averaging the results of all the segments.

Slightly Off Topic:

Good begets better. Strength begets more strength.

It makes me think about kinetic energy: For an object that is moving the kinetic energy equals one-half times the mass of the object times the square of the speed of an object, or Ek=(1/2)mv².

I have my thoughts on this, but am curious to hear yours. What metric for SPY would be substituted for mass (m) and what metric would be substituted for speed (v)?

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  1. Po Pimp

    Ahem, if we recall our earliest lessons from physics we remember that ‘v’ is not speed, but rather velocity. Speed is a scalar quantity referring to how fast an object moves. Velocity on the other hand is a vector quantity that refers to the rate at which an object changes its position.

    If you run full out for 40 yards in one direction, reverse course and run full out for 40 yards you return to the same location. In this case your speed could be quite high if you are of the Ussain Bolt type ability. However your velocity will be 0 because you are right back where you started. In other words your position has not changed.

    As for metrics to use, I think a lot of people that try to erroneously apply the laws of physics to market movements use market cap or something like that for ‘m’. Some sort of price change will represent your ‘v’. Unlike the laws of physics, markets have a substantial human emotional component that cannot be accounted for with initial or boundary conditions.

  2. franky

    what po said?

  3. Yogi & Boo Boo

    Po said it well. Momentum (P) would be the better metric that most people know, with market cap substituted for mass.

  4. Bozo on a bus

    Po, yes, but think of large mutual funds, pension funds, or hedge funds buying or selling. They have to buy/sell over a fairly long period of time. Once they decide to take a position, I suspect they are pretty much committed. They can’t turn it on and off, or backtrack; that would kill their performance. I know there are indicators that try to measure this sort of thing, but in answer to Wood’s question, I would make a guess about how much money in total they have (say $7T), what % will move from cash to SPY (guess go from 3% cash to 2% cash), and over how long (say 3 months). So, “mass” is $70B, at a “speed” of $1.2B/day. About 5% of daily $ volume. Not earth-shattering. And just a SWAG (silly wild-assed guess).

  5. Woodshedder

    Good stuff guys. I’ve got some ideas, but I don’t want to poison the well.

    Pimp, of course v = velocity, but I was trying to keep things simple.

    What about volume?

    • drummerboy

      was gonna say the same shedder,volume and price.volume being the mass, and price being the cant move without the other.

    • Po Pimp

      Maybe volume should be considered as an external force acting on the object in motion. Work it into some form of F = ma.

      That’s the way I would look at it, but that’s not necessarily correct.

      • Woodshedder

        Pimp, I like that idea.
        I don’t like market cap for mass.

        • Po Pimp

          I really don’t like it either, but I don’t think there’s anything that closely relates to mass in this case. A few papers I’ve read on the subject out of curiosity (because I know this is a futile exercise) assume a mass of “unity”. In other words they just set mass to ‘1’.

  6. Anton

    Woody, I think Tom sums up my confusion on this:

    • Woodshedder

      Anton, lol…
      Ek=(1/2)mv2 has always interested me because it seems so easily applied to stocks, if we could only figure out what m is.

      This has just been a thought experiment to see what people come up with.

      I would like to come up with something semi-novel in order to use it to rank momo ETFs.

      • Anton

        I like the idea.

        Arriving at “m” will probably end up filling a couple of white boards and be the sequel to “Pi.”

  7. Weirdo Jay

    Capital leads to production, capital plus production equals higher prices, so capital plus productions creates more production and attracts more capital and more growth… Of course we know this can’t go on forever, and that is because the capital can reach a saturation point when more capital creates so much production that it brings competition and higher expectations which are ultimately unsustainable. Additionally, when capital flows into one area, you neglect another area.

    So then let us look at the market through the eyes of thermodynamics, which is based upon 2 main laws. (1) energy in a system cannot be created nor destroyed, but can be converted from one form to another (2) that a hot object will transfer heat to a colder object. Entropy based upon the Second Law is that the direction toward the maximum chaos or disorder will occur with spontaneous change in a closed system.

    When maximum entropy is reached, the cycle will revert back and capital will move somewhere else…

    But until that point, the energy (capital and resources and production) is converted from one area to another until it reaches the extreme valuations relative to the other, creating the floor and peak

  8. Polisci

    This isn’t a technical run. This is a manipulated run. This is political, not financial.

    1) election year, destined for an Obama win
    2) redistribution of US middle class wealth, as outlined by UN Agenda 21… get them to stay in US dollars at all costs, then kick the legs out from under them. A profitable market leads the pigs to slaughter.