The Trump Short
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.
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