Keybot the Quant, Keystone's trading algorithm, flipped to the bear side at 11:05 AM at SPX 1407. The semiconductors and financials failed. As always, watch for a whipsaw at anytime today or tomorrow. SOX 372.75 and XLF 15.67 are very important. More information is found at Keybot's site;
http://www.keybotthequant.blogspot.com
Only recently became a regular reader here, attracted by Keybot's impressive record re turning points this year. Questions are how unusual is the recent Keybot whipsaw action and what if any significance might whipsaws imply?
ReplyDeleteLikewise, a little unsure of your use of the term whipsaw.
ReplyDeleteGreat question Marlowe, Keybot came on line in 2008 and in the previous years the whipsaws are much less frequent since the markets were more in a trending pattern, longer duration up moves, and longer duration down moves. This year, especially the last few months is an overall sideways mess so that leads to the whipsaws. So the answer would be that whipsaws simply signify market indecision, no clear direction, bulls and bears fighting for control, no clear trend in place. But these periods typically end with a firmer lasting trend developing in one direction or the other. For now, we will see if the bears have any oomph. Simply watch SOX 372.75 and XLF 15.67. If prices remain on the bearish side of these two parameters, then the market bears will send the indexes lower.
ReplyDeleteAnon, another good question, in the algo program itself, for the sake of the internal instructions that must be satisfied or that are used as triggers, a whipsaw is defined as a move back to the other side withing 24 hours time. In relation to what ETF Keybot uses for trading, a whipsaw is defined as 48 hours since if a flip back to the other side occurs within 48 hours the quant will use a single non-leveraged ETF for 35 days. Then the quant is allowed to go back to double-leveraged ETF's. But to answer your question simply, any flip back to the bull side, for today's example, within the next 24 hours, say until 11 AM tomorrow, would be a whipsaw. If a move to the bull side occurs after that then it is simply a change of direction.
ReplyDeleteThe highlighting of a potential whipsaw above simply places you on alert to not 'set it and forget it', as Ron Popeil would say, but rather stay vigilant into noon time tomorrow. If Keybot is still short at noon tomorrow then the algo will likely stay that way at least for a few days.
Thanks for the response as well as the time and effort put into this blog. Appreciate the market commentary as succint yet entertaining.
ReplyDeleteImpressively precise definition/application of whipsaw. I picture whipsaw as a perplexed Steroid Man on speed using a handsaw to cut through a pile of manure.
Whipsaws are simply violent moves in the market up and down as the overall pattern moves sideways. Thus, markets may be dropping so traders decide to jump in short, the minute they do the markets may bounce higher, causing them to lose money. They got whipsawed. Then long traders chase price at the top figuring up is the direction, then whammo, price drops like a stone and moves down sharply. They got whipsawed. You will hear the term sawtooth, or jagged action, all this is the same as whipsaw action, picture a hand saw with jagged teeth, just like the markets jutting up then jutting down.
ReplyDeleteWhen volatility moves higher, note the VIX now over 17 today, this will start to cause much larger and sharper market moves intraday and day-to-day. Volatility is great for day traders since once you are riding the wave, you are buying anticipating the whipsaw move and riding it higher, then in reverse. You must ride the wave, otherwise, you end up on the rocks.