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Thread: Something has changed - a while ago

  1. #1

    Something has changed - a while ago

    I did this study early last year, but did not update it till today.
    A bad oversight.

    It compares holding a portfolio in SP500 futures only overnight (close to open) versus holding only during RTH (open to close).

    Till summer 2015 the bulk of the advance in SP500 was made overnight.
    So holding long a position overnight was the right choice.

    But after the 1st leg down in mid 2015 till today any advance is made during regular trading hours.

    IMO it still can make sense to hold a long position in profit overnight if one has a good reason for a swing.
    But one should expect a countermove overnight - not more favorable advance.

    What caused the change ?
    I have no idea.
    Do the Chinese sell overnight to raise money - is the overnight futures market enough for this ?
    Do the Etfs work differently now - IMHO they were the main reason for the mean reversion character of the SP500 rth in the past.
    Is this a healthy development - the strength coming from within US ?

    I plan to not hold longs overnight, if I do not have a good lead and "only" entered based on some intraday development.

    ES cv overnight vs rth 1605.pdf

  2. #2
    Hi Peter,


    Thank you for this study.
    Here is probably the reason:

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    If Japanese pension funds need to acquire US equities, the only possibility is during opening hours, because the available volume exists only during US market opening hours.

    This is probably another sign that Japan's NIRP policy is holding the US markets up for now.
    We need to track the BOJ meeting dates and see when they intend to revert their NIRP policy, because this could "crash" US equities.



    Pascal

  3. #3
    TY Pascal,

    the timing of the NIRP announcement is a strong argument.

    So we have this "RTH- buying" now
    and the "ETH-buying" of the past years is gone for now.

    I agree the Japanese NIRP seems to be strong driver, I will have to monitor it more closely.

  4. #4
    Quote Originally Posted by PeterR View Post
    TY Pascal,

    the timing of the NIRP announcement is a strong argument.

    So we have this "RTH- buying" now
    and the "ETH-buying" of the past years is gone for now.

    I agree the Japanese NIRP seems to be strong driver, I will have to monitor it more closely.
    Indeed, but before starting the monitoring, it would be good to evaluate past occurrences when the RTH -Buying weakened.

    You can see that the RTH-Buying comes by waves. Each waves is initiated by a strong push (Blue trend lines,) whihc is followed by some sort of support line (Red trend lines). It would be interesting to tray to evaluate the S&P500 gains 3 days, 5 days, 10 days and 20 days after that red trend line is broken. If you get a negative return, then I believe that monitoring when the latest Red trend line will be broken makes sense.



    Pascal

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  5. #5
    TY Pascal,

    The phases you spotted are interesting.

    Here are the dates to your trend line breaks.
    (It is a bit subjective)

    RTH-Buying vs the normal eth time series of the ES futures:

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    here are the percent returns for the selected dates:
    (I hope I have no error in the steps)

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    here are the means of the above:

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    I have not adjusted for a buy&hold base line.
    And 2x 2 signals overlap.
    But I think a trend line break is not a strong enough signal for a short.

    Maybe for T+1, but this is more like a momentum play
    (going with a breakout for a day).
    Last edited by PeterR; 05-23-2016 at 06:08 AM.

  6. #6
    Quote Originally Posted by PeterR View Post
    TY Pascal,


    But I think a trend line break is not a strong enough signal for a short.
    Yes, I agree, but it could be a signal to tell you not to be long anymore.



    Pascal

  7. #7
    I am really surprised by the type of buying today.
    It is concentrated on the main ETFs, as if the BOJ had decided to drop the Yen and forced Japanese pension funds to indiscriminately buy US assets.

    Peter's work tells us to short at around 15:30 today and then buy the open tomorrow.
    I believe that thousands of traders will do the same. This means that the down-move will occur earlier.
    But for now, everything is pushing higher, forcing shorts out of the water.


    Pascal

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  8. #8
    Quote Originally Posted by Pascal View Post
    Peter's work tells us to short at around 15:30 today and then buy the open tomorrow.
    TY Pascal,

    but if you have a good reason to be long - stay long and add longs during the potential overnight pullback :).
    ( ... trading the futures )

    (I know I contradict myself a little, but I caught the leg up early during the Europe session.)

    One technical argument for this BO (breakout) and volatility increase (but not the direction) is:
    Yesterday was a NR7 day + IB. (Narrowest range in 7 days + Inside bar/day)

    I have no idea how tomorrow will look like, but my bias is long and I hope we close today near the high of day.
    Last edited by PeterR; 05-30-2016 at 01:19 AM.

  9. #9
    I discovered an error in my script, that calculates the future returns.

    Here are the corrected numbers:

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    (mean returns for the selected days of a TLB incl. correction for a small baseline drift up)

    Conclusions:
    1.
    Pascal's idea to use a trend-line break as an exit signal and even a short becomes more valid.

    2.
    Don't trust my coding skills or spelling :) .

  10. #10
    Quote Originally Posted by PeterR View Post
    I discovered an error in my script, that calculates the future returns.

    Here are the corrected numbers:

    Attachment 36386
    (mean returns for the selected days of a TLB incl. correction for a small baseline drift up)

    Conclusions:
    1.
    Pascal's idea to use a trend-line break as an exit signal and even a short becomes more valid.

    2.
    Don't trust my coding skills or spelling :) .
    Thank you for this new data Peter.
    This means that we now count on you to post updates regarding this trendline break.


    Pascal

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