S&P is short term bearish

The S&P is displaying a pattern that has historically been bearish 78 out of 85 times in the past if it declines 3 pts below the open after the gap up. Additionally it is short term overbought ala RSI and touching of upper Bollinger band while bumping up against significant volume at price overhead resistance. My guess is if the S&P falls 3 pts below todays open it will go back down to the recent consolidation.

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How to trade this market

The markets have been getting crushed for the past 6 weeks and a lot of traders are blowing their accounts up! I thought now would be a good time to toot our own horn and review some of the recent system performance.

YTD the intermediate term S&P model and NDX model are both up around 8%

Below is a chart that shows some of the recent intermediate term S&P model, trades.

Year to date the “Ripe Trade” setup had 46 trades with 43 wins or a 93.4% win rate. The average of all winning and losing trades was a net 2.9% , assuming you could have taken each trade one after the other a $10,000 account would have compounded into $35,000. The Biggest win was 10.9% profit and the biggest loss was -6.6% .

Year to date the “Sharpe Idea” setup had 75 trades with 67 wins or an 89% win rate. The average trade made +4.9%, assuming you could have taken each trade one after each other a $10,000 account would have compounded into $280,000.The biggest win was 19.4% and biggest loss was -4.8%

Below is a summary of the recent Ripe Trade and Sharpe Idea setups.

This is the YTD equity curve of all the Ripe Trades.


YTD our VIX model is up 27% when using the etf VXZ for longs and VXX for shorts. If you couldn't get a VXX borrow to short a XIV long would have performed just as well.

This is the equity curve of trading VXZ for longs and shorting VXX when a short signal is given in our VIX model!
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Lower Bollinger band system on QQQ

Now is a good time to buy the markets in anticipation of a bounce!

Friday marked the 3rd close below the lower 10 day, 1.5SD, Bollinger band of lows. Historically buying the NDX after it has closed below the lower Bollinger band of lows would have made money on 198 out of 213 occurrences (93% win rate) since 1986 with an average trade of 1.26%.

Rules :

Buy at the open after the $NDX closes below the 10 day, 1.5 Standard deviation Bollinger band on the lows .

Sell on the first profitable close or in 14 days or a 14% stop loss

The QQQ can be used as a trading vehicle.

Performance results of this strategy based on 1 share trades in the NDX!


Below is the hypothetical performance of $100 invested in this strategy since 1986. You can see that the strategy outperforms buy and hold in both performance and maximum peak to trough drawdown and the strategy is only invested in the NDX 9.5% of all trading days, the rest of the time the money would have been safely sitting in cash earning interest. The performance results don't reflect commission, slippage or any interest earned while in cash.

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6 consecutive lower weekly closes

All the major indices S&P, NDX, DJIA have made 6 consecutive lower closes over the past 6 weeks. Historically the indices have had mixed results in the proceeding 1,2, and 3 weeks after this occurrence. The S&P has returned on average 1.79%, 2 weeks after this occurrence, as a comparison the S&P has moved .47 % over all other 2 week periods. However the NDX and DJIA have under performed a typical 2 week period , with the NDX losing -4.5% in 2 weeks after this 6 down weeks setup vs. a .75% increase for all other periods and the DJIA gaining .09% vs. a gain of .4% for all other 2 week periods.

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Markets due for a bounce

The S&P is definitely due for a bounce at theses levels. Yesterday marked the 5th consecutive down close. See what happens after 5 consecutive down closes, here

The 3 day RSI is currently below 15 on the QQQ and SPY , see what happens after a 3 day RSI closes below 15 , here.
The breadth of the market is real oversold ala very low McClellan Oscillator readings, historically this has been a good indicator for buys.

The price pattern in the S&P is bullish, below you will find the historical performance of the price pattern based on trading 1 S&P futures contract. For entry and exit rules to the price pattern sign up for a free 14 day trial to our subscription service!


Short term S&P setups - These short term S&P trades are usually 1-2 days in duration and predict large moves they are usually correct ~90% of the time. Out of the 17 short term trades that have hit since we started the blog we made money on 14 trades for a total profit of 191.2 S&P points. Some samples here!

Momentum Based trading strategy

This is a momentum based strategy that switches between non correlated asset classes. There has been so much research showing that momentum works, academics no longer doubt its value. When non correlated trading vehicles are added to a momentum strategy it increases historical returns and reduces the historical volatility.

This momentum strategy is based on the work of Gary Antonacci and his paper entitled “Optimal Momentum”, which was the runner-up for the 2011 Wagner Award presented by the National Association of Active Investment Managers

Historically, the “Optimal Momentum” concept of buying the best performing asset class out of a basket of loosely correlated asset class’s has annualized a return of 17.2% since 1977 with a maximum monthly drawdown of -25%. As a comparison the S&P has only annualized a return of 8% with a maximum monthly drawdown of -52.5%.

This image is from the“Optimal Momentum” white paper

Using ETF’s this strategy would have annualized gains of 20.8% since 2003 with a maximum peak to trough drawdown of -12% . As a comparison a buy and hold in the S&P would have annualized gains of 7% with a peak to trough drawdown of -52%.

This image shows how this strategy has performed since 2003, using ETF’s.

You can receive the monthly signals to this model by monitoring the rules on your own or by getting the simple buy and sell reminders emailed to you through signing up to any one of our subscription services.

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Stick Sandwich Bullish candlestick pattern

Today we test the "Stick sandwich Bullish" candlestick pattern. This is part of a series of tests we are conducting to measure the efficacy of candlestick patterns.

This is the description as per the Lit Wick website

Stick Sandwich Bullish- How to Identify it:

• The first day is a black day
• The second day is a white day that trades above the close of the first day
• The third day is a black day with a close equivalent to the first day

As always if the term “Long” is used in the description, we will define “long” as a range that is greater than the 20 day moving average of range. When we test the pattern in a uptrend, we define uptrend as a close greater than the 50 day moving average and yesterdays 50 day moving average is greater than the prior days 50 day moving average.

We tested this pattern on every one of the S&P 500 stocks since 1990 and compared the performance results to the average 5 day move in all the S&P 500 stocks. The entry was at the open on the day after the "Stick Sandwich" pattern setup and 3 variations of the pattern , the exit was at the open 5 trading days after entry.

Below are the results of the "Stick sandwich Bullish", " Stick sandwich with a close on the 2nd day greater than the open on the 1st day", " Stick sandwich with a close on the 2nd day less than the open on the 1st day" , " Stick sandwich with a close on the 2nd day greater than the high on the 1st day". As a comparison the average 5 day holding period of all the S&P 500 stocks and all the other candlestick patterns that we have tested to date.