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QuantDNA Spies Exhaustion Pattern at Trader’s Narrative

It looks like I’m not the only one getting nervous about this market as it reaches its January 2010 highs once again. We have several data points gathering that paint a cautionary picture. For starters, retail options traders are reaching for the sky, ignoring risk. Retail investor sentiment is growing equally bold with the bulls outnumbering the bears by almost 2 to 1.

As a result, so much money is flowing into upside volume on the NYSE that all short term moving averages of upside volume to total volume are reaching an extreme. Surprisingly, according to research from both SentimenTrader and Bespoke on this level of upside volume, the market does OK going forward but nothing spectacular either.

Finally, we have an update from QuantDNA which is a bit cryptic because it relies on a proprietary indicator of theirs based on exhaustion:

History has shown that highly predictive sell signals are better viewed as a process rather than an event, so we have been processing a lot of information over the past few days in that light. The market action over the past few sessions has caused many of our proprietary indicators to fire off sell signals. Our proprietary work has primarily concentrated on two general areas…market structure and momentum and exhaustion patterns.

The charts below feature one particular exhaustion pattern that has been one of our favorites due to it balance between frequency and accuracy. It is certainly not infallible but represents a solid indication of a market’s condition on a risk-adjusted basis. As always…no guarantees, only probabilities.

quantDNA exhaustion pattern Mar 2010

Make of that what you will.

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7 Responses to “QuantDNA Spies Exhaustion Pattern”  

  1. 1 Bucky

    Can’t see those charts. Is there a bigger image?

  2. 2 Babak

    unfortunately no but if you squint, it isn’t hard to make out that it is the S&P 500 and it is over different time intervals. For example, the top right is the current chart of the S&P 500. The bottom chart on the right is for 2004, etc.

  3. 3 Bucky

    Hm. The technical pattern I see is “unknown indicator measuring unknown market aspect shows humps when red arrows are placed in humpy spots”.

  4. 4 Babak

    Bucky, you got it! now close your eyes and after a deep breath, repeat after me: “no guarantees, only probabilities”

  5. 5 Keith Piccirillo

    Hold down your control button while scrolling on your mouse to increase the image.
    Thanks for the post.

  6. 6 Steve

    If I didnt know the guys that run quantdna then I would be as cynical as the rest of you. But I happen to know one of the principals and have a colleague that knows them even better and has been to their office numerous times…their stuff is supposedly as good as it gets. Apparently they published that article at the urging of my friend who was with one of the principals this week and the pattern that is being references has been accurate over 70% of the time going back approximately 20 years. I havent seen it myself but knowing what I do, I can tell you that they are far from the promotional types.

  7. 7 Sanjay

    Looks like those quantdna signals couldn’t have been any more accurate. This is not the first time that they nailed it perfectly. How do you subscribe to their stuff?

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