How Many Lumps Do You Want

After having sat on the sidelines for a period, yesterday a number of signals triggered suggesting it was time to reengage. Unfortunately, during volatile periods there are moments like today when one will take some lumps, but 3 or 4 won't be too damaging when trading small.  Quartering account size is a solid risk management strategy during these periods.  Should the market prove you incorrect the losses will be below average, and if the market proves your correct there is something to build off of should stocks continue to align with one's time horizon again.

Same Shit, Different Day

Process Takes Precedence Over Opinions.  

My opinion coming into yesterday was that the market was terrible on my time frame.  The market was in concordance.  Not one anticipation setup triggered.  Coming into today I thought the market was terrible on my time frame.  The market disagreed.  Nearly every anticipation setup triggered within the first 30 minutes of the session. 

Doing the same shit everyday and staying engaged leads to insights when it is a different day.  While I am still of the opinion that the market is not exactly stellar on my time frame due to a lack of breadth trends, I'm not going to argue when setups trigger en masse.

The First Bounce

Using the data from AlphaArchitect we know that there is a 47% probability of a 5% pullback continuing to 10%.  Empirically it is easy to note that the first bounce is unlikely to establish the lowest low of a pullback. Given that the first low of the recent move is approximately 7% and that the first bounce is unlikely to establish the lowest low of the move, a 10% pullback is a more probable event at this point than the indices establishing a bottom.

Top Quotes via AlphaArchitect

A Tale of 4 Indices

For some the S&P is the only index that matters.  Others take the mantle for the Q.   Occasionally the NYSE gets thrown into the mix.  When assessing risk tolerance the Russell tends to take the spotlight.  Some will say it's not about the indices, it's all about stocks, then bring up support and resistance levels on the indices and map out price points with little to no sense of irony.  There are times when I vacillate between viewing the indices as useful, actionable information, and times when I think they are not at all useful.


Recently there were two interesting tidbits I came across which I thought were useful and actionable information.  One is from @ukarlewitz on the Twits who posted the following. 

Analysis from @ukarlewitz

Another useful piece of information regarding breaking down market sell offs.  Market Sell Off Analysis from Alpha Architect.

When markets begin to sell off one of the first things I do is put up on a percentage basis where key levels are from the highs.  Knowing the frequencies of sell offs and the probability of them dragging an index down between 5 to 20 percent can help as a guidepost for zones where settling may occur and potential reversals begin to take root.  Upon looking at four heavily followed indices, what I noted is that on two of them, the NYSE and IWM, I have not had to adjust these levels since early 2018 for the NYSE and mid 2018 for the IWM.  Whether this in and of itself is useful or actionable is in the eye of the beholder.

SPY

COMPQ

NYSE

IWM

Breadth Inversion

A month ago today stocks hit levels of exuberance that generally unwind through price and/or time.  For short term traders this was a warning to be on alert for further deterioration.  Through following magnitude of moves by stocks across multiple time frames, the evidence shows accumulating negatives that have resulted in the acceleration to the downside.  Today this acceleration has inverted readings across multiple time horizons.

Breadth Inversion