Below are quotes and some really amazing charts from Quantifiable Edges, where he studied the performance of rallies after confirmed follow through days when the market breadth were extremely bullish. The results are in line with my minor bullish stance on the markets over the past few days, however with another rough start to the markets today, it’s not easy looking through rose colored glasses when all you see is red.
Sitting on my hands right now waiting to see if we have any afternoon buying. As of now my timing signal is close to confirming my initial bullishness, but it will take a strong surge of late day buying to push it over the edge in my opinion.
“Using the original parameters as described in the post I linked to above there have been 74 FTDs since 1971. Thirty-eight of them (53%) led to successful rallies. This is an interesting stat but it doesn’t tell the whole story. Below is an equity curve that I don’t believe I’ve ever shown prior to last night’s subscriber letter. It shows how someone trading the SPX would have performed using FTDs as a buy trigger and then exiting the trade when the rally either succeeded or failed.” ~QE
As I mentioned earlier, breadth was also very strong on Tuesday. When compared to the past year the Up Issues % on the NYSE was higher than 98.4% of all days. I used the Up Issues % Rank to normalize breadth over the long test period, and broke down FTD results based on those times the 1-yr % Rank was > 95% and those times it was < 95%. First let’s look at times like now where the NYSE Up Issues % Rank was > 95%. (An Up Issues % Rank > 95% means that a higher % of issues traded up today than in 95% of all days over the past year.) ~QE
The strong breadth is the key as similar studies done where the internals were sub-par resulted in terrible results.