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Quantitative Analysis of S&P 500 Price Action – May 1, 2019

The directional bias of S&P 500 is analyzed after the market reversal on May 1, 2019.

For the analysis we use DLPAL LS software to calculate the directional bias of the index for 1%, 2%, 3% and 5% profit target and stop-loss pairs. Below is the workspace for the analysis. We use S&P 500 data from  01/02/1980 to 05/01/2019

The results are detrended using the software proprietary detrend algorithm.

TS is the profit-target and stop-loss file,  P-long and P-short are the long and short probabilities for a position in the corresponding ticker, P-delta is the difference  (P-long – P-short), a measure of the directional bias and S is the significance of the result (for weekly data 0 means low or no significance.)

For 1% target and stop the directional bias P-delta is negative (SHORT) but small. The largest negative bias is for 2% and then for 3% it decreases. For 5% the bias becomes positive (LONG), as expected.

Therefore, according to this analysis, recent price action in S&P 500 offers higher probability of a short-term retracement in the order of 2%. The market may fall more but this cannot be deduced from short-term price action and the analysis must be repeated at every step. In fact, quantitative analysis is normally concerned with the sign of the return of the next period or next few periods unlike traditional technical analysis that is trying to forecast extended moves. This difference is crucial in our opinion.


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