Wednesday, July 9, 2008

Bounce Not Impressive So Far

Last night I discussed the T2116 indicator. I noted that since 1986 there were only four other periods of time where the indicator had risen above the 58.1% level where it stood yesterday. Each instance would have been an opportunistic time to be long.
On Tuesday the market bounced. The S&P 500 managed to rise 1.71%. As far as oversold, short-covering rallies it didn’t seem particularly viscous. Below is a comparison of how it fared against the first day bounce the other 4 times the T2116 rose to 58.1% or above:

Today doesn’t even come close to those. It’s less than half the “worst” ones.

Does it matter?

Back in March, I posted a study that looked at explosions of 3.5% or more following a 100-day low. The results were quite impressive. Tonight I broke down the results by percentage gained on the fist up day. I looked at 3 periods – 5, 10, and 15 days out. Results below:

For every time period, results were substantially better if the move was 3% or better. Below 3% and the results were sketchy. There appears to be a slight upside edge 5 days out, and slight downside edges 10 and 15 days out.

I also looked at today’s volume and breadth statistics and found nothing substantial. The market was certainly oversold enough that it could put in a rally over the next few days and weeks, but today’s start was not impressive.


Roger said...

Thanks Rob, for this recent post.
I'd sent you earlier an email inquiring about similar issues, and you addressed them well in this post - by chance or not!...

Roger said...

In this study, have you considered any intraday data?

I am thinking about rate of climb, for instance. Today's climb was fast and steady, however started late in the day and from a down market.

That being said, I don't know what held the rally most of today's session.

Now, If you consider that 1) it had a late start, 2) it hd a normal rate of ascent, THEN, could it not be that this was just the begeinning of it, that was interrupted by the bell, with some steam still left for tomorrow.

To confirm this you'd have to use intraday data and then consider a certain number of continuous trading hours (8) but only after the start of the rally, not the hours before. That woudl helpo view each rally as it unfolded accross the days boundaies.Tyyndfuuo

Anonymous said...

Great work. Here is why I don't
trust this particular study:
The influences of international markets these days on when (Time of Day) these types of short squeezes can be initiated require that you use mutiple days of gains (or intra-day data) to come to a conclusion.

The strong trend yesterday did not begin until the european bourses had finished trading.

Anonymous said...

Can you defunt the myth about 20% being associated with a "bear" market. Is a 20% retrace a bad oman or a time to go cherry picking? i believe it may be the latter, though it is likely to be a volatile environment.
I'm curious to see if a 20% retrace is a good intermediate term buy (say 1 to 3 months out).


Alex Marion said...

Based on today's action, is there still a bullish edge given the 2.5-3 range doesn't look so hot?