Thursday, July 24, 2014

The Importance Of Independent Order Flow - $FB $QCOM $SPY

SPY closed positive today by a mere penny, so certainly there wasn't anything going on in the market, right? Wrong. As I noted on StockTwits, there were several names I was looking at today on an intraday basis.



While I was watching a handful of different stocks, my primary focus today ended up being Facebook (FB) and Qualcomm (QCOM), as you can see below:

FB - beat Q2 earnings estimates, opened up over 6 percent higher (it had been as high as $78 pre-market). While I feel that given the large pre-market up move we saw, some of the intraday opportunities were limited, I still managed to make a couple of trades in the stock, seen below.

QCOM - beat earnings, but offered weak guidance. Stock opened down over 5 percent. I made a note on StockTwits that I was watching the $77 level right on the Open, as there was a seller that appeared there. I covered my short on the quick 1 point drop down to $76. I tried a short once again when I saw what I thought was a $76.20 seller. The stock made a new low after I got short but quickly reversed, stopping me out of my position.

FB - trade management on the Open (1min)
FB - trade management after the Open (5min)

QCOM - trade management (1min)

Please don't equate a slow day in the indices as being the same as being a 'slow' day overall in the market. This seeming paradox is especially apparent given the nonvolatile nature of the indices themselves (except for perhaps IWM) combined with being in the heat of earnings season. When the indices aren't moving, I'm not trading the indices. I shift my focus even more on stocks exhibiting unusual order flow (read volume) that are gaping up or down by a significant amount with fresh news catalysts behind them (e.g., earnings). I want to be trading stocks that are moving on their own, that is, stocks that are In Play. I will be focused on where the movement is. The concept of stocks with independent order flow is key for shorter-term traders. While it doesn't guarantee success, trading stocks that are In Play will significantly increase the probabilities that you are profitable on a net basis for the day.

Please let me know if you have any questions or comments below.

StockTwits: @MarketPicker
Twitter: @MarketPicker

Tuesday, July 8, 2014

Down Days For SPY

Recently I've been playing around with simple backtests in excel, ranging from the proverbial "golden cross" and "death cross" in multiple instruments (e.g., SPY, GLD, etc) as well as other look-back tests (e.g. # of days above moving averages, etc). I don't consider myself an expert in excel whatsoever, far from it. With that said, the most recent test I ran in excel is looking back to see the number of consecutive down days in SPY year-to-date. With a relatively small sample size, you could just look at a chart and do the calculations manually, but in instances where you're looking back 20 years (as I have done in previous tests), the power of automation in excel can be very helpful.

Here's a link to my google docs showing my calculations as well the tweets I sent out earlier summarizing my findings: https://docs.google.com/spreadsheets/d/1Ocgi-I_FmSq0fPUlFXbpOtDNmgTQscxm3J-Z3gOSozs/edit?pli=1#gid=0

=======================================================================

Update: I ran the same exact test in excel using the S&P 500 Index (SPX), and the results are slightly different than the results for SPY (the ETF that tracks the S&P). While SPY is meant to track the SPX and its movements, there are times when small discrepancies do occur between the two instruments. The main takeaways from this new test are listed below:


  • The most consecutively negative days for SPX is still 3 days year-to-date, however, this has occurred 4 times this year compared to only 3 times for SPY. 
  • So far year-to-date, if SPX has closed down 2 or more times the next day has been positive 77.78% of the time, with an average next day return of 0.23% (median return 0.37%). This is compared to SPY's stats - seen in the link above - which has closed positive 81.25% of time with an average next-day return of 0.28% (median return 0.43%). So compared to SPY, the SPX has a slightly lower probability of closing higher the following day if down 2 or more previous days, and also has a slightly lower average next-day return. 
  • I still find it interesting that even despite the choppy action we saw in the markets earlier this year, the S&P (both SPX and SPY) have closed positive the next day over three-fourths of the time if down 2 or more consecutive days. And even more interesting to me is that the S&P hasn't been red 4 consecutive days - even marginally - so far this year. Eventually this track record will be broken, but who knows when. Maybe this time is different...?

Please let me know if you believe I have made any errors, as I'm sure most of you reading this are more familiar with excel than I am!

StockTwits: @MarketPicker
Twitter: @MarketPicker