It’s the one question that the financial publication industry consistently refuses to answer: how likely is it that the broadcasted thesis happened because of the signal or undervaluation and not just by random chance?

Pretty much all finpub articles offer an investment or trading idea; otherwise, what would be the point of reading the material? If there was no edge to be found, then you should simply put your money into the benchmark S&P 500 SPDR (SPY) and call it a day. But instead, the concept of reading financial analyses is to extract alpha — generating returns that exceed what you’d expect from passive exposure to a broader index.

But you can’t just extract alpha without understanding what you are benchmarking against. And that’s the point of the null hypothesis. In the financial realm, the null hypothesis is the assumption that there is no mispricing. Put another way, whether you read the finpub article in question or not, your performance will not deviate statistically from what is expected.

By logical deduction, our job as analysts is to reject the null; specifically, that the alternative hypothesis that we present is not just a materialization of random noise but an empirically meaningful signal. To determine this meaningfulness, analysts should run a binomial test, which helps narrow down truly interesting ideas from typical price discovery chaos.

However, looking at share prices or their derivatives for recurring patterns represents a gargantuan task. Instead, I prefer compressing (discretizing) price action into market breadth or sequences of accumulative and distributive sessions. By analyzing root demand, we can more easily pinpoint unusual quantitative signals — signals that can point to asymmetric opportunities.

Yes, the emphasis on scientific methodologies is a financial red pill. But if we’re going to beat the market, we have to think differently. Below are three ideas to mull over this coming week.

Walmart (WMT)

Let me be blunt: big-box retailer Walmart (WMT) is a truly boring idea. But even industry juggernauts can occasionally broadcast signals that make them very intriguing. For WMT stock, this signal is what I would abbreviate as the 6-4-D sequence: six up weeks, four down weeks, negative trajectory across the 10-week period.

Since January 2019, this sequence has materialized 17 times. It’s an odd pattern given that the balance of accumulative sessions outweighs distributive, yet the overall trajectory is negative. Still, what’s most intriguing is that in 76.47% of cases, the following week’s price action results in upside, with a median return of 1%.

On Friday, WMT stock closed at $95.05, meaning that if the implications of the 6-4-D sequence pan out, it could hit $96 soon, perhaps in a week. Should the bulls maintain control of the market over the next three to four weeks, a push toward $96.55, perhaps even $97, may be on the cards based on past analogs.

The null hypothesis in this case is the baseline probability of WMT stock assuming no unusual mispricing, which is 57.02%. However, the much higher probability of the 6-4-D sequence — which has an empirically intriguing p-value of 0.0819 (implying 91.81% confidence that the signal isn’t random) — incentivizes a debit-based options strategy.

With that in mind, aggressive speculators may consider the 95/97bull call spread expiring Aug. 8. Barchart Premier members can quickly pinpoint the most viable trades, thereby eliminating much of the guesswork involved in options trading.

The above transaction involves buying the $95 call and simultaneously selling the $97 call, for a net debit paid of $93. Should WMT stock rise through the short strike price at expiration, the maximum reward stands at $107, a payout of 115%.

Okta (OKTA)

Another intriguing idea that popped on the quantitative radar is Oka (OKTA), an identity and access management company. While OKTA stock has been a strong performer, gaining over 21% on a year-to-date basis, it has also been a choppy name. For example, in the trailing month, the security is down 4%. Still, this may open up a trading opportunity.

In the past two months, OKTA stock has printed a 4-6-D sequence: four up weeks, six down weeks, negative trajectory. Since January 2019, this particular sequence has occurred 37 times. Ordinarily, it would be associated with pessimism given the greater balance of distributive sessions, along with the negative trajectory.

However, in 64.86% of cases, the following week’s price action results in upside, with a median return of 4.93%. Should the bulls maintain control for the next three weeks, investors may see an added performance boost of 2.06%. With OKTA closing at $95.43 on Friday, it could potentially be on pace to exceed $102 over the next few weeks.

Here, the null hypothesis is a baseline probability of 52.63%. Further, the 4-6-D sequence runs a p-value of only 0.0917. All things considered, the framework incentivizes a debit-based strategy.

With that said, speculators may consider the 97.50/100 bull call spread expiring Aug. 15. This trade requires a net debit of $96, with a gargantuan payout of over 160%.

Red Cat (RCAT)

Defense contractor Red Cat (RCAT) — which specializes in advanced solutions such as reconnaissance drones — is fundamentally intriguing for obvious reasons if you’ve been keeping pace with geopolitical news. However, it’s also risky. RCAT stock is down more than 12% YTD and that’s including the 30% lift in the trailing five sessions.

If choppiness isn’t your thing, you may want to look elsewhere.

Here’s the thing, though. In the past two months, RCAT stock has printed a 6-4-U sequence: six up weeks, four down weeks, positive trajectory. Since January 2019, this sequence has materialized 44 times. With RCAT, the higher balance of accumulative sessions tends to attract more bullish behavior. Therefore, in 56.82% of cases, the following week’s price action results in upside, with a median return of 9.31%.

On the surface, that might not seem like a significant edge. However, RCAT’s null hypothesis is a baseline probability of 45.32%. Given that the security natively features a negative bias, it’s enticing that the 6-4-U sequence tilts the odds firmly in the bulls’ favor. This signal has a p-value of 0.1398, which is higher than the rest. However, given the open-system nature of the stock market, it’s arguably empirically intriguing.

Those who really want to swing for the fences may consider the 11/12 bull call spread expiring Aug. 15. This trade requires a net debit of $40, with a max payout of 150%.