Last week I wrote about the Bull Volatile regime. As I always like to remind people the way that I categorize the markets is using a LAGGING indicator, the SQN (System Quality Number). The SQN is similar to the way a calendar works, it won’t tell you the temperature exactly every single day, but you have a general idea of if it will be cold, hot, rain, snow, dry, long or short hours of sunlight.
That is if you are in Buffalo, New York in January, you are most likely to have cold, perhaps snow and more importantly you’ll know the tools you need to have handy for that month. Flip flops and a tank top are not to be considered, where as you wouldn’t even think of not grabbing your coat, wearing a sweater and likely your boots and gloves.
The SQN is the same, it helps traders by giving you the general characteristics of the market regimes.
There are two parts to it, first the trend, Bullish, Bearish or Neutral.
Grant wrote this as he is currently doing substantial research on categorizing the characteristics of all market regimes historically. We got to talking about the 2008 Global Financial Crisis, as it's the closest parallel that we have to how much it shook everything and everyone.
We are putting together an extensive research report on that, but I asked him to put together a step by step summary of how the S&P 500 traveled from Bull Quiet, to Bear Volatile and back again. This is just a brief taste of the report we are producing.
Details about the report are forthcoming.
Take it away Grant....
Grant here to provide insights on one of the most elusive market regimes... the dreaded bear volatile market. We will be going through some of the most famous bear markets in history and sharing our insights and research. (Can bring up that we will be producing a report for purchase) The first of our bear market study will be the Great Financial...
This morning at about 4am I rolled out of bed (we have a 2 month old son so my wife and I work in shifts), did my meditation/breathing, then took the baby monitor from my wife, pulled an espresso, grabbed my laptop and got to checking out the happenings overnight.
In the Pollinate Trading Lab, our private slack group (that is just freaking amazing) RogerDodger (his screen name) asked
If you don't have images enabled he asked "Is there a resource where I can learn about SQN and the rules for using it with FVBO?"
Depending on when you joined the email list, you likely have a list of emails from me explaining it. I will be putting that together into a book and making a resource to members of the lab once I finish editing and organizing.
Until then, let's talk about it here.
First let's talk about Market Regimes. Categorizing the market, any market, by a regime type is similar to having a calendar. A calendar is useful to match seasons with location, for example if I...
August 31st I put out an email, posted to the blog, rang the alarm bells, and told everyone I know that it's time to be cautious, if you were sitting on good profits consider taking some off the table or as I did throw on some hedges. It turned out to be the right call as we sold off over 12% in the following week. And we've held that support level 3 times, thus far.
Yesterdays reversal is one of the best sell setups that you could ask for.
It was a Fed Day, and the market rallied hard off the "no change" statement which what you'd expect to see happen off that news. Then just as quickly as it rallied it turned and dumped hard on the Fed Chairs video conference. I'm not one to pay attention to these headlines but rather what is happening around those headlines. And the market printed a picture perfect sell setup right after the retest of the lows.
That, that right there, the worlds best sell setup, is telling us that the bears are in...
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