August 19, 2017

One Anomaly After Another

It’s been a while since my last post. In fact, it’s been exactly one month.

During that time I received the following email from a long-standing subscriber:

I’m sure that you don’t need reinforcement for your strategies, but the
following summary of SPY by Tom Sosnoff pretty much echoes your take on the
current situation.

Since October expiration, yesterday’s rally in the SPY marked 12 out of 16 days it’s gone up. Assuming that there’s a 50/50 chance that the SPY will go up or down on a given day, there’s about a 2.78% probability of having only 4 down days out of 16. And it’s unlikely even if you don’t believe that the probability is exactly 50/50. If that weren’t unlikely enough, the SPY is up over 8% since Oct expiration. That’s the largest percent increase from the opening price to the high price of any expiration cycle in the past 5 years (the average is just over 4%). So, do we toss out the whole normal distribution, standard normal variable, probability, volatility trading style out the window because of a low probability event?

No. Markets provide thousands and thousands of events, and we’re bound to see statistically unlikely events like we’re seeing once in a while.

It’s only those people who aren’t engaged that get surprised by them.

In fact, I would add that October offered one of the more statistical anomalies from a performance standpoint. Only 16 months over the past 114 years (1,368 month) have seen the market push lower 6%, only to be followed by a rise of over 6%.

But, the market action over the past month has led to quite a few trade set-ups and now is the ideal time to take advantage. With almost every facet of the overall market currently in an extreme overbought state I intend to start adding a few bear calls to the mix.

Subscibers stay tuned!