I have not directly talked to my Price/Volume Diffusion Index (PVDI) in a few weeks outside of a few mentions in other posts. A regular reader would have seen me mention that the PVDI has generally increased in recent weeks, following the S&P 500's value upward and pulled up via price momentum and despite lower relative volume levels.
Measuring at the same level for about a week, the PDVI apparently has stalled at just under the 73 demarcation level. See the chart below.
In of itself, the current PVDI currently suggests that market should trend higher in the weeks and months ahead. However, the apparent stalling, if you will, in PVDI peeked my interest. Does this suggest a turning point? Using history as a guide, the answer appears to be yes. At least to a certain point.
I performed a two part test to gauge the trend of both the PVDI and the value of the S&P 500 following a stalling event. First, I looked at the trend in the PVDI itself. Second, I examined the percentage change of the S&P 500's value after the same events. The examination period includes the 60 years between the early 1950's and the present.
First the PVDI. Stalling events in the PVDI, with stalling defined as the PVDI remaining unchanged for four or more trading days, tend to herald reversals from trend. For instance, a stalling in the PVDI following a month or more increase has been followed by a 7 point decline in the next month. More so, the PVDI has gained in only 28% of the instances following similar stalling events. The opposite is also true. A stalled PVDI that follows a falling measure has preceded gains of 7 points or more, and increasing about 69% of the time in the month ahead period.
But can you trade on it? To some degree, yes. However, the window of opportunity appears short. Additionally, I would characterize the return opportunity as slight. Both the short time frame and small return opportunity suggest to me that the any strategy developed around the stalling events should only be exploited by those with significant capital or via option strategies. Nonetheless, the results and data provide compelling evidence that informational content develops around the stalling in the PVDI. For instance, the median percentage change in the S&P 500 since the early 1950's is 6 basis points, gaining 56% in all two week periods. In contrast, the market has registered no gain in the two weeks following an upside stalling event and has increased in less than 49% of the instances. This compares to a 12 basis point gain in the two weeks following a downside stall. More so, the market tends to gain in 62% of the two week periods following downside stalls.
If anything, the information in a stall event appears to suggest an imminent, short-term change in trend.
Measuring at the same level for about a week, the PDVI apparently has stalled at just under the 73 demarcation level. See the chart below.
In of itself, the current PVDI currently suggests that market should trend higher in the weeks and months ahead. However, the apparent stalling, if you will, in PVDI peeked my interest. Does this suggest a turning point? Using history as a guide, the answer appears to be yes. At least to a certain point.
I performed a two part test to gauge the trend of both the PVDI and the value of the S&P 500 following a stalling event. First, I looked at the trend in the PVDI itself. Second, I examined the percentage change of the S&P 500's value after the same events. The examination period includes the 60 years between the early 1950's and the present.
First the PVDI. Stalling events in the PVDI, with stalling defined as the PVDI remaining unchanged for four or more trading days, tend to herald reversals from trend. For instance, a stalling in the PVDI following a month or more increase has been followed by a 7 point decline in the next month. More so, the PVDI has gained in only 28% of the instances following similar stalling events. The opposite is also true. A stalled PVDI that follows a falling measure has preceded gains of 7 points or more, and increasing about 69% of the time in the month ahead period.
But can you trade on it? To some degree, yes. However, the window of opportunity appears short. Additionally, I would characterize the return opportunity as slight. Both the short time frame and small return opportunity suggest to me that the any strategy developed around the stalling events should only be exploited by those with significant capital or via option strategies. Nonetheless, the results and data provide compelling evidence that informational content develops around the stalling in the PVDI. For instance, the median percentage change in the S&P 500 since the early 1950's is 6 basis points, gaining 56% in all two week periods. In contrast, the market has registered no gain in the two weeks following an upside stalling event and has increased in less than 49% of the instances. This compares to a 12 basis point gain in the two weeks following a downside stall. More so, the market tends to gain in 62% of the two week periods following downside stalls.
If anything, the information in a stall event appears to suggest an imminent, short-term change in trend.
No comments:
Post a Comment