I cannot make any claims about the virus itself and this post is the reaction of major stock markets. A good explanation I’ve found on epidemics and exponential growth is this one on YouTube which I recommend watching if you are not already up to speed.
Looking at the current situation it appears that the market has room to fall further as the economic fallout continues and the virus spreads.
If the virus starts to slow down, it won’t be long before stocks find a bottom given the huge amount of stimulus that central banks are providing.
The most important thing is that we need to see the number of new daily cases start to flatten out.
Currently the virus is spreading at an exponential rate and that is causing businesses and services around the world to enter lock-down.
That has dire consequences for company profits.
To summarize some of the information in the mentioned video above, exponential growth means that as you go from one day to the next you have to multiply by some constant.
In the case of coronavirus, daily cases have been increasing by about 1.15 to 1.25 times the previous day’s cases. This results in an exponential curve with the number of new cases increasing on a daily basis. In fact, a virus provides a textbook example of exponential growth since what causes new cases are existing cases. However, there comes a time when exponential growth has to slow down.
For example, as millions of people become sick there are fewer people that can be infected so the rate of new cases must decrease. Likewise, measures such as hand washing and limiting gatherings also have the effect of reducing the spread.
So an exponential curve will eventually level out at an inflection point and turn into what’s called a logistics curve. At this point the number of new cases each day levels out and then starts decreasing. We have already seen this happen in China and now it is happening in South Korea too.
New cases in China leveling out. Source: John Hopkins University.
Growth Factor = No. New Cases Today / No. New Cases Yesterday
A value over 1 indicates that we are still on the exponential part of the curve and there may be higher magnitudes of new cases ahead of us. In other words the growth is not slowing down.
This is the case right now in the USA and Europe. Whereas a value of 1 means that growth is leveling out and a value under 1 means new cases are decreasing.
Taking China as an example, the coronavirus spread began at an exponential rate which has gradually leveled off thanks to drastic shutdown measures.
With new cases appearing to have peaked the country has been able to get back to work and reboot its economy. Meanwhile, the United States and Europe have only just started to see new cases increase, indicating that they are likely to be near the beginning of the exponential curve.
What does all this mean for the stock market now?
I think we need to see the growth rate of new cases in the US and Europe start to level off before we can put in a major stock market bottom. So we need to see the daily growth rate drop to one or below and then stay there, perhaps for a week or so.
Once that happens I think we will see a bottom in stocks and a significant relief rally thanks to the huge amount of stimulus that is being provided by central banks.
It is because of this stimulus that we will see the slingshot. Importantly, though, I don’t think we need to see growth rates level off for the whole world.
It would be enough to see growth rates in the US and Europe start to slow for a bottom to be put in. That’s because these areas (plus China) account for the vast majority of global GDP.
To keep on track of this I am using the coronavirus dashboard developed by John Hopkins University which seems to provide the most up to date and reliable figures that I’ve found. The dashboard provides the latest statistics on new cases which can then be used to calculate growth rates.
Analyzing these numbers it doesn’t seem all that surprising that 10% drop in US stocks that day coincided with a huge daily growth rate of 2.8 times (this is for locations outside Mainland China).
Ultimately, virus growth rates and the stock market are linked and so long as the curve is exponential the markets are going to struggle.
Stock markets are likely to rally every time the virus looks to have been defeated, even when it’s not.
The data isn’t entirely accurate so there is likely to be some false starts. It’s also possible that the market will be able to lead a flattening in the virus whether it is caused by luck, government intervention or some other reason.
But eventually the market will get it right, it always does.
That being said, when stocks are up and the exponential curve has leveled off, review your Daily, then your Weekly charts with signals for Green Light Trade Signals because that will mean we are close to a bottom, or the bottom may be in!
A 100% Legal Insider Trading System is legal is because directors are allowed to purchase and sell shares in their companies provided they do so in a timely manner and disclose their transactions with the SEC. It would make sense that company directors are best placed to evaluate the value of their businesses so the insider trading anomaly has been a fruitful line of inquiry for many researchers over the years.
In 1976, a paper from Finnerty concluded that increased insider purchases led to excess returns of 4.6% in the first six months while insider sales led to excess returns of -2.4%.
In more recent research from Jeng, the authors found that sales did not produce any meaningful results but insider purchases led to annual excess returns of as much as 11.2% over the S&P 500.
However, subsequent research from the Handbook of Equity Anomalies used the same methodology and produced annual returns that were nearly 7% lower between 1978-2005.
Nevertheless, the anomaly still shows grounds for development particularly in smaller cap stocks that are out of the realm of big firms.
In one study from the same book mentioned above, small cap stocks that had seen intensive insider purchases produced excess returns of around 5% in the first month, with most of those coming in the first 10 days.
This is illustrated in the following chart taken from the book:
The Insider Trading Trading System & Strategy
There are a number of online resources you can use to track insider trading such as Insider Monkey and SEC filings. You can then go long small cap stocks with strong insider purchases. You need to be quick as most of the return comes in the first few days.
I was watching YouTube and my feed was taken over by Eye-Opening Spoiled Fish Trading videos and in between were advertisements for trading services and trading chat rooms promising quick and easy profits.
YouTube has become a cesspit of snake oil salesmen and fake trading gurus.
Fish (Noun): An inexperienced or unskilled player, especially such a player who loses significant amounts of money; a live one.
YouTube Spoiled Fish Trading Alert: Trading is not easy and you cannot make millions of dollars in your pajamas, on your iPhone, whilst simultaneously travelling the globe.
I know it’s hard to believe but it’s true.
The only explanation for all this hustle is that YouTube must have become a fertile breeding ground for fish.
So how can you avoid becoming one?
Let’s start by highlighting some of the shady characters currently doing the rounds on YouTube so you know who and what it is you have to look out for.
1. The Spoiled Fish Trading Smooth Operator
Top of the list is the smooth operator who knows all about internet marketing. These guys usually broadcast themselves from a beach or New York penthouse with wads of cash spread out on the bed.
A good way to lure fish is to show wads of cash spread out on a bed.
They claim that trading is so easy, all you have to do is follow their signals and take their courses and you will become their next millionaire student.
Some of the videos these guys make are so laughable that you think it must be a spoof. You keep waiting for the big ‘reveal’ but it never comes.
Without doubt, the smooth operator is the most dangerous character on YouTube.
Many run illegal practices like front running and demo trading.
And they get away with it by using clauses that tell you not to bad mouth their services. Top prize goes to the guy who pretends to have spoken at Harvard University when in fact the whole thing is a ruse set up by actors and other con artists.
2. The Clueless Millennial
Next on the list is the clueless millennial. These guys mean well but they don’t have enough experience to be talking markets.
The last time the market went down these guys were in kindergarten.
They don’t realize that their strategy (aggressive averaging in) is a ticking time bomb.
Ironically, being born in an era of online means most of these guys got their trading knowledge from, you guessed it, YouTube.
The result is a cyclical regurgitation of stale trading info.
Top prize in this category goes to the guys and gals buying leveraged ETFs and cryptocurrencies on every dip. Because everything goes up eventually, right?
3. The (So-Called) Live Trader
This trader broadcasts his impressive trading abilities for everyone to see via YouTube live stream. He is therefore a shining beacon of transparency and skill. Or is he?
Apart from being incredibly boring to watch, these traders cause a lot of harm since many of these charlatans are actually operating demo accounts. New traders (aka fish) see the profits being made on these demo accounts and think that trading is easy and viable.
They come to believe that good trading is about watching the market and acting on impulse.
Buying options or futures contracts because…
“Hey, I was doing so well for the last 6 weeks! I can do this.”
All the while they were utilizing a system that has no correlative alignment proven reliable. Thus, should not have worked from the start.
Sadly, they blamed an intermediate term signalling system because it was not designed to function within their “own short term” option or futures trading.
There are literally thousands of videos on YouTube that show you how to trade particular indicators and chart formations.
They never give you concrete rules or tell you how profitable a chart pattern is.
Because as time passes charts change with market winds just like the clouds.
Shhh,,, please do not tell anyone this secret; but “the wind is unpredictable.”
Have you ever seen the clouds move and change shapes? This is precisely what charting is. Guessing which way the winds blow in 1 minute, 5 minutes, 1 hour, 8 hours, 1 day, 5 days, 1 month, and 1 year from now.
Which begs the question, do any of these YouTube guys really know what they are talking about?
5. The Copycat Merchant
Lastly, there is the copycat merchant. This is the guy who manages to piggyback off other people’s content, making themselves look good when really they don’t have a clue.
Top prize in this category goes to the guys who take down a video following a DMCA complaint only to upload another exact copy under a different username days later.
I hadn’t realized the situation on YouTube had become so bad. Good trading content is out there but it’s being swamped by hours of garbage.
These characters waste your time, send you down the wrong path and cause you to lose money and they don’t seem to care about it. A lot of the time they get away with it through the use of disclaimers.
Here is one such paragraph buried deep in a disclaimer of a well known YouTube trader:
This disclaimer was taken from a well known trading website.
In others words, these guys are going to show you trades in their chat room but they’re not going to tell you which are real and which are fake.
Even a fool knows this is a bad deal.
Unfortunately, fish don’t read disclaimers.
So what can you do?
The best thing you can do to avoid being conned is to seek out trading content that is science based, not based on squiggly lines or emotional appeal. But they are hardly ever backed up by data and statistics, analytics, and decades of time tested Nobel laureate supported scientific proof.
Don’t base your preference on popularity or number of views because there is a clear negative correlation between these things.
There is a negative correlation between trustworthiness/trading ability and number of views on YouTube. Before going on YouTube be aware that a lot of the content is poor and ask yourself whether it’s worth your time.
Instead, look for content that is backed up by data. For example:
Does it show historically back-tested performance results?
Does it show win rate and maximum loss?
Is the sample size large enough or historically long enough?
Can you replicate the results yourself with time?
Good trading is not easy, you need a proven system. Good trading is statistics, process and discipline, and a long history of proven performance.
If you could win 91% of your bets in Baseball, Basketball, Football, Poker, or the Horses, would you consider placing a bet or two?
Or, would you prefer to just blindly buy a virtually 99.999999% guaranteed losing lottery ticket?
Now, let me add to the reality. What I am talking about is not gambling. It’s a simple to learn and easy to execute trading system that uses the Wealth Maximizer Pro trade signals built on pre-screened and optimized investments. A system with up to 99 years of history.
It is 100% real, honest, and can be a proven winning trade machine for you.
You can download and read the free PDF below right now.
The Dogs Of The Dow Trading System & Strategy has been around since at least the early 90s and exists in a couple of different forms. The strategy involves tracking the 30 stocks in the DJIA and each year selecting the 10 stocks with the highest dividend yield. Each year the portfolio is rebalanced so that you always hold the 10 stocks with the highest yield.
Since dividend yield often moves inversely to price, this is essentially a contrarian strategy where you are selecting some of the weakest performers from the index.
According to this analysis from Steve Auger, the Dogs of the Dow strategy has been an effective one, outpacing the Dow index by a decent margin since 1999:
Dogs Of The Dow Trading Alternative Trading Strategy
Another variation of this strategy is to go long stocks that have been removed from market indexes.
For example, when the S&P 500 announces constituent changes, go long the stocks that have been removed.
These ‘dogs’ often see compulsory selling by fund managers who track the market indexes and this heavy selling leaves them technically oversold and potentially undervalued.
This anomaly has been documented in the UK market with success. Research from Jay Dahya in 2006 found that “deletions to the index are associated with a negative price response, which is fully reversed over a 120-day period after news of the removal from the index.”
Dogs Of The Dow Trading System & Strategy:
Go long the 10 highest dividend yield stocks in the DJIA and rebalance each year.
Alternatively, track stocks that have been removed from major indices like the S&P 500 or FTSE 100 and go long after heavy selling pressure around the announcement. Hold for up to four months to capture the full reversal.
Quadruple Witching Effect Trading System & Strategy is the peculiar name given to the third Friday of every March, June, September and December, where index futures, index options, stock options and stock futures all expire.
The expiration of these contracts forces many investors to roll their positions which essentially means they sell their positions in the current contract and buy it back in the next.
This creates movement and volatility and can be a particularly interesting day for day traders.
Since quadruple witching leads to selling in the current contract it would make some sense for this to be a negative day for markets and analysis does back this up.
Research shows that shorting SPY, the S&P 500 ETF, on quadruple witching day has been a net profitable strategy with a win rate of 70% and an average profit per trade of 0.28% over the last 69 trades.
Although this is a small sample size there is some evidence of a profitable edge as illustrated in this equity curve:
Quadruple Witching Effect Trading System & Strategy:
Short SPY on the open of quadruple witching day and exit on the same day close.
FOMC Drift Trading System & Strategy completed a 2011 study commissioned by the Federal Reserve Bank of New York found that large excess returns could be found trading US equities in the run up to scheduled FOMC monetary policy meetings. This effect was shown to go back to 1980 and has increased over time.
The paper, which won first place in the 2015 Amundi Pioneer Prize, shows how US stock indices generally drift higher in anticipation of FOMC meetings.
Since 1994, the S&P 500 index has gained an average of 49 basis points in the 24 hours before scheduled FOMC meetings with a high statistical significance and high Sharpe ratio.
The FOMC drift effect is shown to be robust across other international indices but no effect was found in Treasuries.
The authors also found that the drift is stronger when the slope of the yield curve is low and the VIX is higher indicating higher equity market volatility.
The following graphic is taken from the paper and shows clearly how stock returns have gravitated upwards on FOMC days as compared to non-FOMC days. The grey ‘clouds’ in the diagram represent confidence bands:
FOMC Drift Trading System & Strategy Explanation
The FOMC drift seems to contradict the efficient market hypothesis but it is easy to form a rational explanation for this anomaly.
Since a primary goal of the Federal Reserve is to maintain market stability, FOMC policy announcements often act to suppress market volatility or give assurance to market participants. In recent years there has also been a trend of lower interest rates and accommodative monetary policy.
It’s possible, therefore, that traders and investors anticipate this soothing presence from the Federal Reserve particularly during volatile periods.
Short sellers may also refrain from entering short positions in the run up to FOMC announcements knowing that an accommodative decision may be coming up.
A possible criticism of this anomaly is that it shows strongest performance between 1980 – 2011, roughly the same amount of time that interest rates have been declining in the US.
It will be interesting to see how this pattern holds as interest rates rise.
FOMC Drift Trading System & Strategy:
An easy way to implement this strategy is to go long index futures in the 24 hours before FOMC meetings and exit trades just before the meeting gets underway.
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