The Inversion Investor

The Inversion Investor

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The Trump Short
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The Trump Short

Peter Pham's avatar
Peter Pham
Jul 22, 2024
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The Trump Short
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A few days ago, I highlighted an apolitical short trade. It was based on the relationship between speculative retail volume and the bid, which caused the DJT 0.00%↑ to rise by approx. 30%. However, this increase is expected to be faded in the subsequent days and it has - see below.

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Vote to Short $DJT

Vote to Short $DJT

Peter Pham
·
July 16, 2024
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When we calculate the correlation coefficient between trading volume and same-day price change, as well as between trading volume and subsequent 5-day price change.

- Correlation(Volume, Same-day % Change): 0.72

- Correlation(Volume, 5-day % Change): 0.31

The strong positive correlation (0.72) between volume and same-day price change supports the observation that high volume is associated with price increases. The weaker positive correlation (0.31) between volume and 5-day price change suggests that this relationship weakens over time.

T-Test for Price Changes

We'll perform a paired t-test to determine if the difference between same-day price changes and 5-day price changes following high-volume events is statistically significant.

- T-statistic: 2.84

- P-value: 0.047

With a p-value < 0.05, we can conclude that there is a statistically significant difference between same-day price changes and 5-day price changes following high-volume events. This supports the observation of price declines following initial spikes.

Analysis of the Most Recent Volume Spike (2024-07-15)

The most recent high-volume event on 2024-07-15 saw a trading volume of 80,789,436 shares, which is the second-highest for the stock. The stock price increased by 31.37% on this day, from $30.89 to $40.58.

Historical pattern following this event:

- Day 1 (2024-07-16): -9.09% (closed at $36.89)

- Day 2 (2024-07-17): -1.22% (closed at $36.44)

- Day 3 (2024-07-18): +2.58% (closed at $37.38)

- Day 4 (2024-07-19): -6.39% (closed at $34.99)

The cumulative 4-day change following the event is -13.78%, which aligns with the historical pattern of price declines following high-volume events.

Expectations for the Coming Week

Based on the historical patterns and statistical analysis, we can form the following expectations for the coming week:

Continued Price Volatility: Given the recent high-volume event and subsequent price movements, we can expect continued volatility in the stock price.

Potential Further Decline: Historical patterns suggest that prices often continue to decline for several days following a high-volume event. We've already seen a 13.78% decline over 4 days, but there may be room for further downward movement.

Reduced Trading Volume: Trading volume is likely to decrease compared to the spike day but may remain elevated compared to average levels.

Potential Rebound: While the immediate trend is downward, there's a possibility of a rebound later in the week. This could be triggered by new information or market sentiment shifts.

What’s Next?

Based on data from the last six months, the probability of a decline over a 5-day period following a high-volume event is 83.33%, increasing to

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