Friday’s large market drop brought about a series of interesting quantitative set-ups. Some positive for the market, some not so good. Let’s take a look.
TickerSense notes the QQQQ traded significantly below its 10 day moving average, which historically presaged a bounce back. James Altucher at RealMoney.com highlights the triggering of his QQQQ Crash system on Friday. This systems is quite similar to the TickerSense model. To-date the system has had a perfect record.
In the US Market Blog, TickerSense mentions that,”During the first week of the year, the ratio of weekly advancers to decliners measured 5.3-1, which ranks as the second strongest reading since the start of 1998.” This historically has led to strong performance over the succeeding three months.
Also in the US Market Blog, TickerSense looks at the performance of the Dow after large Friday drops (-1.75% to -2.25%). Here the historical evidence is far more mixed, with negative average performance over the next week.
Barry Ritholtz at the Big Picture notes an ominous indicator for the stock market. With Friday’s drop the “December Low Indicator” was triggered, i.e. during the first quarter the market breached the low set in December. Historically this has led to down years for the market.
So depending on your time frame the market’s action could be anything from bullish to bearish. Part of any investor’s process is a firm grasp on the time-frame of their investment process. So take a closer look at the underlying statistics when reading about any sort of quant model.