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Forecast page: https://ift.tt/otdQpXZ The new redesigned forecast gauges are decidedly negative across all the short term periods. Does this mean 100% we are going to get crushed? Certainly the historical matching algo has landed on some days in history where we’ve had some big down days. Are there tradeable bounces inside weak and even bearish markets? Definitely In posts over the last year I’ve highlighted a bullish trade that used the 7 period RSI while above the 200 day moving average. It is a nice setup as markets experience the inevitable pullbacks in bull markets. I like the shorter period RSI for swing trading as it provides a lookback period that typically aligns with those oversold swing bounce areas in bullish markets. As markets move to more bearish or technically ruptured structure the default 14 period RSI begins to shine. In bullish or bearish markets the default 14 period RSI rarely goes full oversold (30) in a bull market or full overbought (70) in a bear market. In bullish markets you’ll notice the 40 level rarely gets penetrated and the same structure in bearish markets emerges as it rarely goes above 60. One of the defining features of a bearish market is the consistent expansion of bar sizes. This increased range across all timeframes creates bars with significantly larger high-to-low percentage spreads. You can visualize this on your own charts using the ATRP indicator. While similar to the standard Average True Range, the ATRP adds a critical layer of context by calculating the specific Percentage of that range relative to price. I track ATRP across all timeframes to develop a proprietary volatility measure, essentially my own version of the VIX. The effects of a bearish regime are visible all the way down to micro-second bars; these bars exhibit expanded ranges just like their daily counterparts. For example, the typical range for a 5-minute bar currently sits at approximately 10 to 11 S&P points. In a quieter, 15 VIX market, those same bars usually fluctuate around 7 points. This expansion across timeframes is a hallmark of the technical shifts I monitor. One of the anomalies of this particular sell-off is that daily ranges have remained relatively compressed. The 5-period daily ATRP currently sits at 1.37%; while elevated, this is notably low compared to a VIX in the mid-20s, which typically demands an ATRP above 1.5%. Historically, when the RSI spends several weeks suppressed below 50, we expect to see much larger bars. Despite the “fear” currently dominating the headlines, the price action suggests a lack of true capitulation. Instead, many traders appear to be quietly positioning for a bounce, betting on the possibility of de-escalation on the war front. By way of comparison, the initial market drawdown in March and April of last year produced ATRP levels significantly higher than what we are seeing today. Even as the market began that “walk down,” the volatility was more pronounced. This contrast highlights the unusual nature of our current environment, where despite the headlines, the actual price action remains relatively contained. The default RSI has now spent 3 weeks (15 trading days) below the 50 level without the RSI level breaching below the oversold 30 level. Again, we are not seeing the fear on the chart, but only in the headlines and a fairly mild walkdown in the market. If and when we do get larger bars and the RSI pegs below the 30 level, there will be an indication of fear in the headlines and the chart. Those types of conditions typically provide opportunity. Usually, it is a short-term play: a high-confidence, quick strike that provides outsized returns relative to time spent in the market. The 183-period moving average. After spending decades diving deep into billions of price bars across every imaginable timeframe, I have found one consistent signal emerging from the data. The 183-period moving average acts as a definitive line of demarcation between two distinct market regimes: the one above it and the one below it. While many studies highlight the 150 or 200-period averages, the 183 offers a much more specific and definable tone across those billions of bars. We will dive deeper into that specific data in a future post. We’ve now had a few days dancing around that moving average. Another element of that moving average is to denote whether it is rising or falling. Currently it is rising. If we get a spike in ATRP and a thrust below 30 with the RSI while still having that rising moving average, backtests have shown quick strikes to the long side can be fruitful. For example if all these conditions are true in SPY:
Buy SPY the next day and place a profit target at 1.25% or exit after 2 days. We’ve only seen this condition trigger on 4 other occasions in the history of SPY since 1993 (we’ll get in to the ones where the 183 MA is declining). With volatility (ATRP) elevated the profit target is hit very quickly. Below you can see those 4 entries and exits on a chart. March 2025 October 2014 June 2012 August 2004 Let’s look at how we handle a declining 183 moving average. While using the same entry criteria, we must apply a tweak to adjust for the change in regime: specifically, a market characterized by a declining moving average and larger bars. We will want to increase the size of our ATRP level to reflect the higher volatility environment. The Rules are the same as above but we increase the ATRP threshold and require a declining moving average:
The exit will reflect the massive volatility and the time typically required to resolve price upward. The profit target is set at 8% and we would hold a maximum of 1 month (21 trading days) These are usually in VERY turbulent times. Headlines will be over the top with fear. But again we exit profitable every time. April 2025 March 2020 March 2009 October 2008 July 2002 September 2001 You should note these are not designed to be high risk-adjusted return type trades. There is, at times, heat to be taken on this type of setup given the highly emotional periods in which they trigger. That being said, there has been price movement ultimately to the upside. You will notice many of these caught longer-term bottoms. Can trades like these fit into your portfolio or trading strategies? That is your call, but these highly emotional setups can be fruitful if you structure them in a way that complements the portfolio structure you have at that time. Have a Great Night! Dave Johnson - Quantitative System Designer at via Trading Time Machine https://ift.tt/1sMhEn8
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Dave JohnsonI'm Dave Johnson, a former investment advisor and quantitative system developer with over 30 years of experience building and trading mechanical systems. These days I focus on rules-based research, honest backtests, and sharing what the data actually shows. Archives
June 2026
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