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Quantifiable Edges

I have been away for a while.  When I’m away subscriber services continue pretty much as normal but blog posts tend to suffer.  I’m back and will have a couple of posts this week and then get back to the 3 or so per week starting next week.

Very light volume at new highs as we saw on Friday often indicates a rally is running out of buyers.  Frequently such light volume is followed by a pullback in the next few days.  There were several studies that appeared in the Quantifinder Friday that demonstrated this point.  I’ve chosen one that was also in the Subscriber Letter to highlight below.  Blog readers last saw this study on April 5, 2011.

 

This study looks back to the inception of the SPY in 1993.  The numbers above look fairly compelling.  I also found the edge to be quite steady over the tested period.  Of course with the gap down in the futures, much of the downside edge may be realized quicker than usual today.  It’s possible it won’t persist for as long.  Nonetheless, as I’ve shown many times before, volume does matter and traders should pay attention to it.


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