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On The Predictive Power Of The "Submitted-To-Accepted" Ratio In POMO
Late in October, before QE2 was fully launched we penned a post, with the help of John Lohman, titled "The POMO Submitted-To-Accepted Ratio: A Tell On How To Frontrun The Frontrunning Primary Dealers" whose focus was the "Submitted-to-Accepted" ratio in any given POMO operation. While by now everyone is aware that POMO days (at least historically) have had a huge positive impact on stock returns (since they have been virtually daily since the beginning of the market meltup), and created their own self-fulfilling prophecy, it is the nuances in POMO that still catch people unaware. Namely, we claimed 3 months ago that the Submitted-To-Accepted ratio is a critical tell in how the market will perform through close, finding that "generic market effect on POMO days (i.e.
stocks and yields up relative to non-POMO days) should be pronounced
when the submitted-to-accepted ratio is relatively low (“meets
expectations”) and muted when the ratio is high (“a negative surprise”,
particularly if said Dealers had already positioned themselves in
pre-POMO trading, based on a set of expectations regarding the
outcome)." Following the surge in the S/A ratio in yestedrday's POMO, which effectively predicted the market rout, we decided to rerun the analysis. We found that recent incremental data merely reinforces the original conclusion: namely, watch out for days that have a substantially above average Submitted to Accepted ratio.
John Lohman elaborates:
The first analysis of the Submitted/Accepted ratio pointed out that above average ratios (suggesting the POMO did not ‘meet expectations’) have a negative effect on the equity market. Since anything that might cause a red close is directly opposed to the Fed’s third mandate, they attempted to remedy the situation a short 6 days later with their November 3rd announcement that full details of upcoming POMOs would be released well in advance. While this attempt to reduce uncertainty around the operations has managed to lower the average S/A ratio, it is interesting to note that the overall phenomenon remains: stock prices do better on days when the ratio is below average and worse on days when it is above.
The following table measures the S&P 500’s performance over the 44 POMOs since the first analysis, based on the S/A ratio of each day’s operation relative to the average.
The last table is similar, except that it compares the ratio with the median in an attempt to account for any potential skew in the S/A series.
The chart below confirms all one needs to know empirically based on POMO S/A performance.
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Coulda been rich, bitchez
Yep, if only I could perfect this rear view mirror attached to my monitor, I could have made SO many perfect trades! Still workin on it though.
When will someone be arrested and charged for all the shit that has happened?
Holder's allowed to take down the Italian-Americans, but not the banksters.
and cnbc touting fannie and freddie and attacking any republican attempts to scale back the fraud
Are they telling the sheep to trust Chris Dodd's leprechaun?
Fabulous. More sheer market stupidity and predictive corruption. Generations. It will take generations of Americans rejecting the equity market and this mess...until they finally forget it all.
Thank you criminal syndicate Wall Street bankers. Thank you Ben Bernanke. Thank you congress. Thank you to all the folks that have failed miserably in their appointed duties only to intervene in the markets purely to save their own hides...after the damage was already done. Great.
CAPITAL WILL NOT FORM IN BANKS AS CORRUPT AS OURS! [Let's get the pink slips flowing please]
Cdad unfortunately I dont think they have generations in mind, they want their central control 1 world govt and cashless society and they want it NOW. Soros just yesterday said its over.
At this point I dont really see anything to stop them, I guess they can keep playing 'cat and mouse' longer but what the hell is the point? Most americans will believe anything and to me all it would take is a big disaster 'national emergency' declared so sorry your assets are gone, now beg to us to be your overlords and we'll let you eat something daily. Whats to stop them?
And Rick Santelli said in an interview on King World News, that Blackhawk Ben "deep inside has a good heart and is doing what he believes in best for the people".
Only a CNBC correspondent can say such shit and believe it.
Dog,
Answer: Bond Vigilantes [for one]!
3.713 today, market ramp commencing in 5... 4.... 3...
Speaking of POMO, Is there one today?
http://www.newyorkfed.org/markets/pomo/display/index.cfm
Outstanding. Thank you. Business as usual. Rally on.
Does the Frosty-Sack at the NY Federal Preserve publish the S/A ratio???
We found that recent incremental data merely reinforces the original conclusion: namely, watch out for days that have a substantially above average Submitted to Accepted ratio.
Nice work, TDs. Keep it up! Fascinating analysis.
spx to 1240 minimum
Great info. Anyone have the average and median ratios handy? It may be staring me in the face, but I'm not seeing it.
for the qe2 period, avg=4.2 , med=3.5
good thing i used excel for those 'cause i'm having difficulty with the captcha
Thank you very much, and LOL!!!!
I wonder what the return is after the S/A data is released in the morning. I.e. don't take the return info from market open but rather from the market price right at the S/A announcement.
I see today is 3.7, but what is the average S/A ratio? edit: I see, thanks
wow...sure glad i listened to sales guy a goldline and bought 1430 high in gold....next stop 1332 then 1315 then 1276.
How about an $870 retest of the 1980 blowoff top?
You can only get raped so much... but this is starting to look like the raping when the Soviets entered Berlin in '45.
http://en.wikipedia.org/wiki/Rape_during_the_occupation_of_Germany
sounds reasonable to me...probably sp testing 666 while that is happening.
So, market MOJO = low S/A POMO
Be sure to take both of their passports. The trials will be interesting and hopefully long on details. Results of the verdicts carried out on prime time television and in public.
Somebody want to 'splain to me why the bond market continues to get hit, while the commodity complex, including the PM's are giving up the inflation trade, the equities market is getting hit and the dollar has rallied for couple of days?
If the "risk off" trade is back.. how come bonds ain't participating?
Bill
That has me wondering as well. It could be two things going on simultaneously.
most hedge funds that were long stocks and commodities were short treasuries as well so if they were unwinding trades bonds would rise. However, someone liquidating a fund while someone else sells Ts might have that effect. Natty up, which many shorted. Everything is easily explained by one cause except the bond thing.
Bad TIPS auction adding to sell off....6.5bps tail
Convert all your assets to PMs. Get a farm. Eat food from the farm and hope that after the dark ages, your progeny can do something with the PMs.
Better days will come. Just not in our lifetime.
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I don't know anything, but I get this....TY!
Very interesting, thanks.
I've noticed the opposite in terms of bond yields though. A high ratio = lots of sellers = yields go up, not down. Prices are what goes down. Vice versa with a low ratio.