Much of the talk these days has been
about the incredibly low volume across the board. Well, “incredible”
isn’t the right word at all - this is a perennially quiet time of year
in the market. But what was kind of interesting was today’s meaty rally
on such low volume: except for the Nasdaq, the major indexes were up
more than 1.5%. So we wondered:
Historically, would there be any edge in shorting large rallies that occur on very low volume?
We
defined a “large rally” as any day in which the underlying closes at
least 1% higher than the previous day. As for volume, we looked
for days in which the volume is both below its 50-day moving average and
is the lowest volume of the past 10 days. We’re talking
serious non-participation here. We shorted the close of any qualifying
day and bought back the position 4 days later.
To see the results our system generated, click over to our options trading blog...