STP Algo Trader - Market Insights

One of the benefits of running an algorithmic trading system that screens almost 1400 stocks every day is that it can provide some interesting insights into the stock market.

Our system – Signal Trader Pro – looks at the largest, high quality and most widely followed stocks in the stock market every day. We rank them by their operational momentum and several technical indicators.

We are looking for “winning” companies and stocks. We then are looking to buy them when they stumble.

Recently, though, we haven’t seen ANY high-quality stocks stumble almost at all!

In fact, we have seen only TWO new signals generated since early April.

What is going on?

Part of the reason for the low number of signals is that we raised the bar. With the heightened volatility, we triggered our BULL SWITCH.

This is where we focus only on the highest quality companies and wait for them to get deeply oversold. This reduces the number of signals but also protects us if the stock market goes into a prolonged sell-off.

Our thirty years of trading experience has taught us that it is better to be cautious when the VIX is above 30 and wait for the absolute highest probability opportunities.

The “opportunity cost” of missing out on additional opportunities in the rally is well worth avoiding the – potentially catastrophic – risk of capital loss.

Remember also that we have had plenty of OPEN SIGNALS to take advantage of “V” bounce. Since we finished with the BULL SWITCH change, we have seen 24 exits with only two losses. Many of these exits were for over +20% returns including two at more than +40%.

Even if we had not enacted the BULL SWITCH, since the steep sell-off on April 8 - we would have only seen about 20 new signals.

Why have there been so few signals?

The reason is pretty simple to understand – believe it or not, there have been almost NO stocks going down!

As tumultuous as the “Trump Tariff Tantrum” period was on the stock market indices in early April, the ensuing rally has been remarkably and historically powerful and broad.

For instance, in the past month the S&P 500 has logged two “perfect weeks.” This is when the index closes higher in all five sessions that week.

Here is a recent post on X/Twitter from an insightful strategist named Jason Goepfert…

Look closely at that chart and you will see that these “perfect week” signals do NOT happen during extended BEAR markets.

This makes a lot of sense as those periods are defined by long-term liquidation of stocks being driven by powerful capital outflows. It is hard to understand how we would see the S&P 500 go up every day of the week during these periods. Especially doing it two times in just a month.

Look at the table and you will see that these “perfect week” signals usually lead to decent stock market performance. There were two difficult periods – 2011 and 2021 – but the rest of incidences lead to strong stock market performance.

Across most of the periods on the table, the stock market goes up 70%+ of the time so these numbers are better than average. The gains are also better than the long-term averages for the S&P 500 over these same periods.

In terms of the Signal Trader Pro model – what does all this mean?

Well, it is hard to generate signals on oversold stocks when there are no stocks going down.

Historically, though, this type of one-sided price action in the stock market does not persist. Look at the table and you will see no incidences of three “perfect week” signals happening in a short period of time.

Our view is that we have moved from a period in the stock market where most stocks have been driven by movements in the market to a (more normal) period where most stocks are driven by movements in the stock.

This is normal and healthy for the stock market and will also drive more opportunities for our system. If indeed we are returning to the previous BULL market trend, then we expect the number of profitable signals to expand over the coming weeks and months.

We’d love to hear from you! Let us know your thoughts in the comments section online or at [email protected]

Click here for more information and to sign up to Signal Trader Pro, an algorithmic trading platform.