Technical Market Signal Statistical Review
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One of the things we like to do with Fusion IQ is review the full universe of stock scores and the new Buy & Sell ratings.
From time to time we can glean information from our overall statistics to get a handle on what is going on under the surface of the market.
Consider the tables above: They represent two key metrics we track. The first table is Average Technical Score Rank, and it looks at how many stocks fall into each of three categories of our average numeric score of technical factors only.
Three months ago, when 4,200 issues in the Fusion IQ universe were below a 40 rank, the market was sending us a clear bearish message. This weakness then continued and peaked one month ago. Interestingly enough we see now that quickly over 1,000 stocks have moved back above the less than 40 score range indicating an overall improvement vis-à-vis these stocks moving into a higher score class range.
The second table highlights near-term momentum changes by looking at the ratio of timing BUYS, SELLS and NEUTRALS today versus the same time one week and one month ago. There has been a significant shift in the last week as 160 stocks are now registering new timing BUY signals. That’s a significant improvement over last week and last month.
In summary what these two tables tell us is that under the surface the market is seeing a subtle positive momentum shift (from extreme oversold conditions) that suggests a long side trade makes more sense at present levels for a tradable rally.
January 5th, 2009 at 12:22 pm
Ah yes the more things change the more they stay the same, or in other words, hope springs eternal.
January 5th, 2009 at 12:42 pm
So now we have Steve Barry vs. Barry Ritholz. A no-holds-barred cagematch. Two men enter…
I’ll settle the tie - I’m about to capitulate on my short side bets, especially FXP. That should be a massive shorting signal for everyone else.
Does anyone else know what the F stands for in FXP? I know what it stands for around my house.
January 5th, 2009 at 12:47 pm
I’m with E. I have 48 contracts of SRS and SKF about to expire worthless on Jan expiration. Jump in on the short side anytime after that - you’ll make a killing.
January 5th, 2009 at 12:49 pm
grab some FXP leaps, then you can still be in the game,I got SRS leaps too. FXP options have very small premiums. SRS has about a 10% spread bid/ask, what a joke, I aint selling for that.
feels weird as anything right now, but just went long on margin. 3% trailing stop, since I totally don’t believe in this fundamentally, but you can’t fight City Hall.
January 5th, 2009 at 12:54 pm
sorry, not technically leaps, just long dated into this year.
January 5th, 2009 at 12:57 pm
Well, Barry, maybe a tradable rally…I bought some TBT this morning after mulling it over for the w/e. Not a stock, but seems very logical to me. We will see how agressive the Fed is about holding the yield down……….
January 5th, 2009 at 1:10 pm
No information is given as to how the “Average Technical Score Rank” is determined, but I’m guessing that it has no value in predicting reversals.
I give this rally another two weeks. Then it’s time for the bears to get back in the game.
January 5th, 2009 at 1:22 pm
Barry,
With all due respect, it seems like maybe there’s a contrarian signal within your aggregate data. It seems like the fact that you had SO few new Buys a month ago was a counter-signal that things may have been oversold.
I’ve followed your individual stock picks over the years and you’ve had some terrific SELL calls on stocks that went to ZERO. But, I’m just wondering, in terms of your technical scores, if there is a heavy “momentum” element to your work. I just wonder if you can use your aggregate scores as a sort of RSI that can get “oversold” or “overbought”?
- AT
~~~
BR: Trend is a big component in the signals. They are not designed to catch the very bottom, but rather, the meat of a rally . . .
January 5th, 2009 at 1:32 pm
As a marketing/business aside Barry, I would DRAMATICALLY raise your prices. When I read somewhere that you were only charging $40/mo for Fusion IQ, I thought it was way too cheap. I think you might find that if you charged $300-500/mo you might get even more takers. Sometimes when something is offered too cheaply, people will shy away because it’s “too cheap.”
FWIW.
~~~
BR: The product being offered now @ $40 is what is likely to end up as the higher end (non-institutional) offering, in the $99/mo range.
A simplified, less comprehensive version of the current offering will be the $40 version
January 5th, 2009 at 1:50 pm
Andy Tabbo @ 1:32
And BR should be charging at least $100/month for access to the ritholtz.com/blog website.
(LOL).
~~~
BR: Rather than charge, in 2009 I will get serious about the advertisers . . .
January 5th, 2009 at 2:00 pm
My intermediate term timing model just hit its lowest level since 9/14. http://www.regimenia.com/2009/01/week-of-1-4-2008.html
I won’t be adding long positions until the tape begins confirming a trend reversal.
January 5th, 2009 at 2:20 pm
well i’m back at the daily grind after a nice vacation. my best year ever last year and this year is starting off great..
i’m going to start commenting again.
BR - would love to see a post on what you best and worst trades were in 2008.
as far as the market I am about 62% long given appreciation off my original 50% long position I took in early Nov. ..
Right now I am trying to get some leverage into the portfolio so am looking to add LEAP calls to take advantage of the massive volatility crush that went on over the last few weeks.
I trace bid/ask prices for option every day.
Just an example….
On Nov 20 the SPY was at 815 and the Jun 120 call was offered 1.12. now its offered 0.63 and the SPY is 120 points higher..
many similar examples so a good time to be shopping for options.
ideally i’ll catch a little rally to SP500 1000 and then I can buy some puts and set up a huge spread trade for the rest of the year!
January 5th, 2009 at 2:59 pm
if you believe it can’t get any worse, and that massive gov’t intervention/ nationalization is market positive, get long.
otherwise sell everything.
today.
happy new year.
January 5th, 2009 at 3:50 pm
Your models are providing support to my instincts. My instincts are not perfect, but do have an occasional bout of accuracy. I’m hoping to make a few bucks early this quarter. Unless the hedgies go on another bender this quarter, I think we might see an S&P above 1000 pretty soon. Europe is looking a little stronger, too. This will be a trading high, but the subsequent dip should be one that doesn’t scare the world. Then off to the previously mentioned (in TBP) probable improbables where things look a little rosier a little earlier than most people expect.
Anyone have any insights about oil services? I absolutely believe that a buy now or last month will pay off big time by the end of the year. I’m just a little unsure about intermediate moves.
January 5th, 2009 at 4:19 pm
It strikes me that for the S&P to be around 1000, with the likely dismal earnings and absolutely abysmal guidance that is almost certain at the end of this quarter, the implied PE is nothing short of nonsensical.
Factor in the continuing stream of layoffs feeding back into the reluctance to spend on the part of John and Jane Consumer, and the “plan” to stimulate the economy by charging less taxes (taxes on what?) seems less than overwhelming.
I suppose it’s just my simple-minded way of looking at things, that these conditions seem about as conducive to significant rallies as they were in October 2007. I know, there is a substantial exhaustion of bearishness, but the underlying realities of the economy would seem to dictate that the bear market continues.
All the happy-talk in the world from the “bottom-has-landed” crew will not sway the unemployed sots watching CNBC as they are dispossessed of their worldly goods.
Even IF Obama were to roll out a viable plan to restructure all existing mortgages, and cut personal income taxes to zero, it would take at least a quarter to show any impact — more likely 6-9 months.
In the meantime, it’s going to be like J.P. Morgan is reputed to have said when asked what the markets will do tomorrow — he said “they will fluctuate”.
My view is that they will fluctuate with a downward bias for quite some time to come. We still have failures of municipalities and states to endure, and we have not yet managed to inflate deflation into submission.
But the fluctuations are likely to be larger and longer, in keeping with the ginormous shifts in the global economy. Think of the frequency and magnitude of waves in the ocean vs in your local pond.
I have, however, terminated my outstanding QID options, as nobody survives by fighting the tape. But the QID ETF positions I’m holding, as in the fullness of time they will certainly bloom. Kinda like the gold bugs holding out for 3000.
January 5th, 2009 at 4:22 pm
The reason I like three line break charts is that they don’t pick top or bottoms. They let you know that the trend has reversed. So my daily reversal for SPX is 968.75 on the upside and weekly reversal is 1099.23. Until then the trend is still down. My $0.02
January 5th, 2009 at 4:49 pm
Oh good! Finally a rational thinker that believes we’re heading for a rally for reasons beyond
1) Stocks are insanely cheap
2) the recession is already 13 months old, which is longer than most of the others
3) Stocks have fallen 52%, making this the worst bear market in 60 years–and thus a great time to buy, and 4) because investors are negative now, so that’s PROOF we can’t go down farther.
But I’m still taking the bold approach in believing this will be the most boring rally from here on out anyone here could imagine. VIX < 20. S&P at 1100 by mid-march? That’s 18% above where we are now, which doesn’t seem too unrealistic considering we fell 700 points between July and November. 1100 would put us up 350…or exactly half of the crash.
I figure I should add I believe the S&P will fall to around 500 in 2010, but stocks never go straight down without a big rally of long duration. I’ll know it’s time to start getting short again when Steve Barry says he’s ready to sell QID for $35. But I expect that to be many many months away.
January 5th, 2009 at 5:14 pm
Those are interesting Polaroids, the charts above.
If one can, successfully, repeatedly, capture the middle 80%, that has to be good enough, to be one of the Best–throw in a little, well-applied, leverage, it’ll allow one to walk amongst the Greats..
U$D 60 000 x 2%= U$D 1 200
U$D 100 x 12= U$D 1 200
learn to Trade, by knowing youself, first + understand options= Roll your Own, and buy your own Quarter of Beef, and then some..
January 5th, 2009 at 5:14 pm
I have no idea what goes into Barry’s analysis…I’m sure he wants to keep it that way for proprietary reasons. But recall last year, as I was losing money on my QID for months, I would warn incessantly how volume on QQQQ was constantly below its 100 day MA and I did not trust the rally from March to June. Well, the same applies today and calls into question any assumption you make technically. Today’s volume was even less than Friday’s on QQQQ, less than half avg. volume, and marks the 28th trading day in a row at or way below avg. volume. That encompasses this whole rally. This rally looks identical to the rally that ended last June and now 10, 21 day put/call and II Bulls are all more bullish than when the June rally bombed. My whole rason for being short, massive debt bubble, is even worse now than last year and will get worse as GDP tanks and government loses all that revenue and prints massive fiscal stimulus.
January 5th, 2009 at 5:20 pm
Another caveat: Unless the dollar starts tanking hard, you could be looking at y/y comparisons that take 15oo bps off foreign revenue growth in 1Q09.
January 5th, 2009 at 5:55 pm
Finally, the last time II NYSE Bulls were this bullish, the Dow was trading at 14,000.
January 5th, 2009 at 6:08 pm
I do believe your $120 QID will come to pass, I just don’t think it’ll come for a year or so. I definitely agree with your analysis. But I’m looking at the 1929-1932 crash, where it took 36 months to fall. To fall further now would assume that the market is rational, and is pricing in the economy. But if the market is rational now, why did it peak 2 months before the recession began? Now’s a great time for a rally…new president, massive stimulus, consumer sentiment might even be so low that it might go up 1 or 2 months. But if you take a look at the 1929-32 crash, there was never a period of time when stocks fell 49% in 4 months without a significant rally. Of course things could be different if this recession turns out to be worse than that one (4 years). But I have my doubts at this point. I think once this is all over, you’ll have your QID hit it’s mark. But I hope for my sake the rally continues.
January 5th, 2009 at 6:34 pm
@ Mark - I’ve been chewing on advice you gave about trading options. What kind of annualized return could I expect by employing a calculated smattering of Buy / Writes on some blue chips, for example. Generally speaking, that is.
January 5th, 2009 at 6:39 pm
Oh. I went big into bonds today.
January 5th, 2009 at 7:34 pm
speaking of dead cat bounces: http://latimesblogs.latimes.com/unleashed/2009/01/bush-family-cat.html
January 5th, 2009 at 7:39 pm
I tend to think of timing indicators vs “value” indicators as being similar to the relationship between position and momentum in Heisenberg’s Uncertainty Principle — you may have excellent timing intel, but you will never have a clue about how long that trend might last. OTOH, you can look at “valuation” metrics, and be able to predict that at some point things will reach certain levels of valuation, with no clue about how long it will take to come to pass.
To fool oneself into thinking that you can predict when a trend will begin and also where it will take you to (and when) is equivalent to predicting the future — it cannot be done.
If you’re going to rely on timing, then you plan on being eager to reverse on a dime, and must have an extreme amount of faith in your timing signals. If you’re going to rely on valuation, then you must be willing to ride along through (potentially) long periods of market madness, before the markets eventually seek out your levels of valuation. Faith is required in either circumstance, or some guidelines that take one out of the game when it becomes too chaotic. That’s what cash is made for.
Mixing the two prolly invites disaster, as there will inevitably be times (lots of times) when the methodologies conflict.
Ancient Chinese proverb: Man with two watches never knows what time it is.
January 5th, 2009 at 7:57 pm
this: Steve Barry Says: January 5th, 2009 at 5:14 pm
is, truly, telling..the recent ‘rally’, from a Price perspective, does, indeed, look nice, but, from a Volume perspective, it looks like it has all the ‘Classical’ hair of a ‘Bull Trap’..
with that, if someone knows something different–about ’strong’ Rallies on weak Volume, I’d like to learn it..
with this: TrickStar Says: January 5th, 2009 at 6:34 pm
TrickStar,
With traditional Buy/Writes, even in this, current, low-interest-rate, lessening Volatility, Environment, I’ll, still, submit that double-digit rates of return are realizable–especially if one is Shorting Puts to initiate the Long Equity “Buy” portion..
with additional Leverage, as always, the dual-edge Sword comes to play..
Leverage, or no, Options, or no, it is, as BR, his ownself, rightly, points out, Tight Stops are Key..
January 6th, 2009 at 12:07 am
I’m interested in anyone’s opinion on brokers.
I have an ETrade account and a Vanguard account. I’m in the process of moving everything to Vanguard and have started to trade with V but the commissions are 3-6 times that of Etrade.
January 6th, 2009 at 7:40 am
SWMOD52,
you may care to add, the below, to your list of firms to check out:
http://www.icerocket.com/search?tab=web&fr=h&q=Interactive+Brokers
January 6th, 2009 at 10:18 am
@Mark E. Hoffer
At current volatility rates, you can get returns of about 5% a month, depending on volatility, writing (selling) cash-covered puts.
For example, January HIG 17.50 puts are priced at about .90. 90/1750 = 5.14%.
Obviously, this strategy entails significant downside risks. But you knew that already.
January 6th, 2009 at 10:55 pm
Thisson,
That’s cool, thanks for pointing that out.
I was trying to underline the de minimus case for “Buy/Writes”, many people are incredulous when they hear the readily realizable returns that are available in a field that is usually described, if at all, as tooo Risky..
that one, that you point out is a decent example of ‘getting paid to go long’..
and, as you know, shorting the underlying, or buying back the option, is ‘the cover’ of the short Put position..