“There’s also a disturbing cultishness to the Bitcoin community, where everyone is as bullish as can be. “Someone is going to get rich this year,” Peter Vessenes, the executive director of Bitcoin, said in his opening keynote. The Bitcoin documentary that was teased at the conference is called The Rise and Rise of Bitcoin. Everyone was talking about how the price was only going up. Bitcoiner Tuur Demeester, the author of a financial newsletter, gave a talk in which he projected a number of scenarios in which the price of a Bitcoin could exceed $1,000, such as hedge funds committing 1 percent of their portfolios. “That’s why I think the risk-reward ratio is extraordinary,” he said. “Everyone should own at least a few Bitcoins.” He did not discuss any scenarios which might cause the price to fall.”—From Verge. “Because it’s math. You can’t kill math” (Joseph)
"For as long as I can remember, veteran businessmen and investors – I among them – have been warning about the dangers of irrational stock speculation and hammering away at the theme that stock certificates are deeds of ownership and not betting slips. The professional investor has no choice but to sit by quietly while the mob has its day, until the enthusiasm or panic of the speculators and non-professionals has been spent. He is not impatient, nor is he even in a very great hurry, for he is an investor, not a gambler or a speculator. There are no safeguards that can protect the emotional investor from himself."
"We have tested every system under the sun and, amazingly, we have found one that actually works very well. It is a very good system…(under the realm of) trend following.
The basic premise of the system is that markets move sharply when they move. If there is a sudden range expansion in a market that has been trading narrowly, human nature is to try and fade that price move. When you get a range expansion, the market is sending you a very loud, clear signal that the market is getting ready to move in the direction of that expansion.”
Consecutive Up/Down Days: S&P500 and NASDAQ Composite
Most traders know by now that many U.S. Indexes and ETFs have closed down for five consecutive days or more as of Friday’s close (December 28, 2012). Below is a quick look at two main U.S. Indexes, the S&P-500 and the NASDAQ Composite, and how they performed 1-5 days after closing down 5-days in a row.
Note: Fiscal Cliff talks are in their 13th hour this weekend and could potentially impact market behavior on Monday, December 31st and the following week.
Disclaimer: I realize 2-years is not enough back-test data to base a trade on. Small sample back-testing is done to give traders an understanding of the odds and probabilities involved.
Let’s look at the S&P-500 first. Here’s a two year chart of consecutive up/down days:
The Blue arrow points to the current streak. Yellow arrows note other times over the past 2-years that the S&P-500 has closed down more than 5-days. Here’s a look at how the S&P-500 has performed one day after being down 5-days in a row:
A Bear Correction signal occurs when the Bullish Percent Index is on a P&F sell signal, but advancing with a current column of X’s. Any advance remains a correction until there is a breakout to reverse the sell signal.
The PnF bear (sell) signal warrants caution, but the successful test of the 50 level has the current trend in favor of the bull.
The NASDAQ Composite is down four consecutive days (“4-day cycle”). Thought I’d take a look back and see how returns were one to five days afterward.
Disclaimer: I realize 2-years is not enough backtest data to base a trade on. Small sample backtesting is done to give people an understanding of the odds.
Results the next day after the NASDAQ Comp was down four days in a row. Better than break even odds that it turned positive. Here is a look five days after:
Odds improved over the five days. I also noticed that the odds steadily increased from 1 to 5 days, so it would appear that odds favor the NASDAQ closing higher days after it has closed down four days in a row. Do note though that it is not 100% certain that the NASDAQ will close higher days out. Price is king. We could have one day up to break the cycle and four more days straight down.
Percent Of SP-500 Stocks With A 14-Day RSI Below 30
The first chart is a two year look back that includes that massive spike in 2011 when it looked like Europe was going to implode. The second chart is a one year chart without the 2011 super spike, but includes the May 2012 spike.
As you can see, the percent of S&P-500 stocks with an RSI below the 30 level is currently 15% (as of November 10, 2012).
Closed Friday at 38.20%. Some simple back testing:
Results of looking back two years where the percent of S&P-500 ($SPX) stocks trading above their 5-day Simple Moving Average (SMA) was less than 10%. The above back test then looks out four days after that to see how the $SPX did. Results are fair.
Same settings as the 2-year back test (below 10%, look at results after 4-days) only this is for just one year (most of 2012). Both of these aren’t nearly enough instances, but these are simple back tests with limited data.