Daniels Trading

Trade Futures, Spreads and Options with Confidence.

 

Animal Spirits at Stock Market Highs

by Frank Kaberna| Tips & Strategies

Small Stocks (SM75) futures have made new all-time highs 5 of the last 9 trading days (56%). For context, SM75 made new highs just 5% of days going back to 2017. The phenomenon known as “positive drift” dictates that stocks move higher more often than not (+0.05% average daily move in SM75 vs 0% theoretical), sure, but is this recent activity too much?

Gain exposure to popular markets with standardized tick values and expiration dates on the Small Exchange. Learn More >>

All 55 all-time high occurrences in SM75 were concentrated into just four distinct spans of a couple weeks, which is to say that new stock market highs cluster. This distribution’s lack for uniformity indicates that the number of recent price extremes is actually quite normal.

To boot, expectations for the few days following a new high should not necessarily be bearish given a historical average next-day reaction of +0.05% Those selling immediately into new highs have not been met with success.

So where does that leave the active trader unwilling to buy all-time highs in stocks? Well…in a tough situation it would seem. Though it may seem counterintuitive to anyone taught to buy low and sell high, traders willing to buy into highs have seen profits as long as they live in the short term as the week following a new high has seen +0.6% on average.

That said, there’s been considerable opportunity for bearish traders capable of holding shorts for a month or longer: SM75’s average monthly move following an all-time high has been -0.6% compared to that of +1.0% for all months.

All-time highs in stocks have benefited the aggressive, short-term bull and the patient, long-term bear. Choose your temperament and spirit animal accordingly.

© 2020 Small Exchange, Inc. All rights reserved. Small Exchange, Inc. is a Designated Contract Market registered with the U.S. Commodity Futures Trading Commission. The information in this advertisement is current as of the date noted, is for informational purposes only, and does not contend to address the financial objectives, situation, or specific needs of any individual investor. Trading futures involves the risk of loss, including the possibility of loss greater than your initial investment.

New call-to-action

About Frank Kaberna

Frank Kaberna is the head content strategist at the Small Exchange. He produces everything from brochures to videos that inform on the Small Exchange’s products. After earning a mathematics degree from the University of Michigan, Frank traded interest rates at the Chicago Board of Trade. He then worked on the tastytrade Network as a content producer and on-air talent before landing at the Small Exchange.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2021 StoneX Group Inc. All Rights Reserved