Its been a while since I have done an educational post. And usually, going into new years, I tend to talk about sentiment changes and how no two years are the same. So, I thought I would do a bit of a project. I have been a day trader since 2018 (and not profitable for a big chunk of that time haha) and I always notice some slight sentiment and behaviour changes each year.

This year, since I have new found coding skills, I thought I would share some objective comparisons.

The most similar year I can find to the current year is 2021. So, what I have done is I have downloaded SPY daily data (thank you Tradingview!) and sorted out data from the year 2021 and from the current year. Let’s look over some of the objective results to see if similarities exist and then we can look at some of my subjective assessments.

Objective Data

Daily Change:

In 2021, the average intra-day change (close – open) was 0.03%. Currently, our average intra-day change is 0.09%, slightly higher than in 2021. However, if we take into account inflation, we can look at the average cost point from open to close from 2021 and today. When we do that, we get an average of 0.15 cents from open to close over the course of the year, and for year to date currently, is 0.44. Plugging 0.15 cents in the US inflation calculator, 0.15 cents in 2021 is equivalent to 0.17 cents in 2024. So not that similar really, we are more bullish thus far from a change perspective.

What about our ATR ranges?

In 2021, the average High ATR range (open to high) was 1.96. The average Low ATR range (open to low) was 2.16. This tells us that there were many dips and buying opportunities along the way.

Year to date, our high ATR average range is … 1.97. Pretty curious. And our average low ATR is .. 1.88. This means, our dips are not as steep as they were in 2021 with a very narrow buying range.

Take a look at the charts above. These are scatterplots of SPY’s high ATR range. One thing you can tell by looking at 2021 vs 2024 is there was more consistency in 2021. There was a clear accumulation of ranges between 0 and 4 and very few beyond 4.

If you look at 2024, our scatter plots are all over the place. There is no accumulation or consistency. Albeit, it is extremely early into the year and this may change. Now let’s look at the low ATR scatterplots:

Similar situation here, with 2021 showing consistent accumulation below 4 and 2024 showing more randomness.

What about trend?

We can measure the linear trend by doing a simple time series correlation. Measuring the trend for 2021, our average linear correlation of time over close was 0.97. A very strong uptrend.
Doing it for year to date, we have an uptrend of 0.98. A hugely strong uptrend. We can actually use this data to create a linear regression time series model to assess the drift in a dollar amount. What drift essentially means is, to what extend did SPY drift from its uptrend during 2021 and 2024? Doing this, we get the following:

2021 Time Series Drift: $7.31. This means that, at any given point, SPY drifted on average $7.31 above or below its predominate uptrend.

2024 Time Series Drift: $3.33. This means that, at any given point, SPY drifts on average $3.33 above or below its predominate uptrend. A slightly tighter range than in 2021.

Here is SPY in 2021 with its 2021 time series model overlayed:

You can see there were some outliar areas where we dropped below but then were quick to get pulled back up. Now, if we do the same with our year to date data:

You can see its an extremely narrow range. SPY has essentially been travelling in a straight line up.

What about technicals?

The final thing I want to compare is technical, specifically Z-Score and RSI. As a refresher:

Z-Score: Measures the degree a stock is from its trading mean. Anything 2 or above would indicate that the stock is above 2 standard deviations from its mean. Anything -2 or below would indicate that the stock is 2 standard deviations below its mean.

RSI: Is a measure of momentum, it measures the average gain vs average loss of a stock. Elevated RSI’s means there exists a lot of bullish momentum. Low RSI’s indicate there rests a lot of bearish momentum.

So, let’s take a look at the 2021, 14 day Z-Score trend:

See anything interesting?

If you look at 2021, you will see that the Z-Score trend confirms what the ATR has already told us, that there were well defined dips to buy (as SPY would travel, at times, down to -2 Standard Deviations). However, when we look at 2024, what we see is anything at -0.5 standard deviations and its back to up.

Is it normal? I have no clue, but I can say I haven’t seen this type of aggressiveness before.

Now let’s look at RSI:

See anything unique?

The obvious is that RSI is not trending below 55, vs in 2021 we would get tests in the 40s.
The other thing is that RSI is trending down despite the stock going up. I am not an RSI pro to say whether this is bullish or bearish divergence, but it does seem that the choppy price action and narrow range is making room for continuations up.

So what does this all mean?
1. Objectively and subjectively, dip buying remains the go to for the year AT THIS TIME. We can see it in the Z-Score, the RSI, the ATR range and the Change. It all supports a presumption of market euphoria that results in very marginal pullback and then a continuation up.
2. We are not seeing swings like we saw in 2021. Our pullbacks are limited (as discussed above). We can see the RSI coiling and declining despite a grind up. This is likely a result of limited to no pullback. As the stock becomes over-extended, it has nowhere to go but up (owning to the market euphoria), but its not attracting buyers. Thus, what does it do? It gives a few points of pullback, but then grinds and grinds while RSI declines. This makes for a LESS volatile and SLOWER market.
3. We are overdue for pullback. This is a subjective assessment and, to be frank, I have never seen this kind of behaviour before so I am just guessing, but the fact we can barely break -0.5 standard deviations below the trading mean is a little…shall I say… ridiculous? Unrealistic? Preposterous? Obstinate? Just annoying really.
The need of pullback is also manifested by the very little drift SPY has seen year to date. A $3 drift on a major index is absolutely too narrow. We will see, at some point, some profound pullback that will pull this $3 out a bit wider.
Will the market correct? Only if there is a catalyst for it. Market bubbles are superbubbles. They generally don’t implode on themselves. They need you to walk over with the pin and “pop”.
What would be a catalyst? It would need to be something unexpected. Rate hikes probably aren’t going to do it because we are expecting it. A recession, perhaps, could save the bearish day.
4. The market is painting a very precarious path. The narrow drift and the erratic ATR range paint a precarious picture. While there is some semblence of stability with the narrowing range, its not generally a normal thing to expect to find in the market, even with a stable index ETF. It indicates a lot of crowding in one direction with a hint of fear (manifested by the erratic ATR plot). Right now the semblence of stability and greed overshadow the hint of fear, but at any point, if that fear spikes, in the famous words of myself, it will be a "mess" and a "nightmare".

These are my thoughts, both objective and subjective. I have provided the raw data so you can obviously formulate your own opinions.

Thanks for reading and safe trades to all!

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