On The Predictive Power Of The "Submitted-To-Accepted" Ratio In POMO

Tyler Durden's picture

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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eskin1's picture

Coulda been rich, bitchez

SheepDog-One's picture

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.

goldmiddelfinger's picture

When will someone be arrested and charged for all the shit that has happened?


Joe Davola's picture

Holder's allowed to take down the Italian-Americans, but not the banksters.

NOTW777's picture

and cnbc touting fannie and freddie and attacking any republican attempts to scale back the fraud

goldmiddelfinger's picture

Are they telling the sheep to trust Chris Dodd's leprechaun?

Cdad's picture

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]

SheepDog-One's picture

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?

Cash_is_Trash's picture

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.

Cdad's picture

Whats to stop them?


Answer:  Bond Vigilantes [for one]!

ReeferMac's picture

3.713 today, market ramp commencing in 5... 4.... 3...

Bull v. Bear's picture

Does the Frosty-Sack at the NY Federal Preserve publish the S/A ratio???

truont's picture

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.

NOTW777's picture

spx to 1240 minimum

Dingleberry Jones's picture

Great info.  Anyone have the average and median ratios handy? It may be staring me in the face, but I'm not seeing it.

FOC 1183's picture

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

Dingleberry Jones's picture

Thank you very much, and LOL!!!!

Dingleberry Jones's picture

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. 

A L I E N's picture

I see today is 3.7, but what is the average S/A ratio? edit: I see, thanks

daybyday's picture

wow...sure glad i listened to sales guy a goldline and bought 1430 high in gold....next stop 1332 then 1315 then 1276.

goldmiddelfinger's picture

How about an $870 retest of the 1980 blowoff top?

Cash_is_Trash's picture

You can only get raped so much... but this is starting to look like the raping when the Soviets entered Berlin in '45.


daybyday's picture

sounds reasonable to me...probably sp testing 666 while that is happening.

metastar's picture

So, market MOJO = low S/A POMO

optimator's picture

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. 

Billy Bob's picture

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?



buzzsaw99's picture

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.

blind squirrel's picture

Bad TIPS auction adding to sell off....6.5bps tail

Geoff-UK's picture

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.


Dan The Man's picture


I don't know anything, but I get this....TY!

Barry McBear's picture

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.