Wednesday, March 11, 2009

Why Tuesday's 90% Up Day May Not Be Bullish

Lowry’s has shown 90% days to be effective in determining market bottoms. For those who are unaware a 90% day is a day where volume and points are 90% one directional. A 90% up day would occur when 90% of the volume traded and points traded on the NYSE are to the upside.

Tuesday was a 90% up day. Lowry’s looked for cluster of them in order to determine a bottom. (You can find a free copy of their report Identifying Bear Market Botoms” here.) Unfortunately, I’ve found 90% days coming directly after a bottom tend to lead to market weakness. For the below study I ignored the points qualification and just looked for 90% up volume days.

(click to enlarge)


Both 1 and 8 days later all of the instances saw the S&P trading lower. Interestingly, while the test went back to 1970, 6 of the 8 instances found have occurred in the last 2 years. Prior to that it was unusual for a 90% day to occur directly following a low.

15 comments:

Mr Trade said...

In this case the low was made 2 days before the 9:1, but I see the testing is for bottoms 1 day before.

Mr Trade said...

I'm also not sure how there could only be 8 such instances going all the way back to 1970, I know the 50 day low 1 day back requirement will filter a lot of them out, but I am looking at this year and see 6 up days alone, and that is with the 9:1 points requirement. Intuition tells me there should be more instances for you to work with or that perhaps the 50 day bottom is too stringent a requirement.

Rob Hanna said...

Mr. Trade -

A closing low was used in the test, not an intraday low. Sorry for the confusion on that. That is how yesterday qualified. As I mentioned, 6 of 8 instances have occured in the last 2 years. 5 of them have been since the October 2007 highs - not including yesterday.

Rob

Mr Trade said...

Thanks for the clarification, good work as always.

Jason Leavitt said...

What are the stats when the market has a 90% down day followed by a 90% up? To only consider a 90% up day coming after a 50-day low means there was no washout at the low.

Anonymous said...

see comments with a different take by Jason Goepfert from SentimenTrader.com (and a Minyanville.com Professor)

"The S&P 500's close last Wednesday was 712.87. It closed above there today, marking the first time in 27 years that the index closed at a new low one day, then rallied enough the following day to close above its five prior closes.....

The 1982 instance marked the end of that bear market, as did the one from April 1942. Otherwise, they were just multi-week rallies, which I am at least expecting here.

Only the December 1931 occurrence saw the S&P (barely) violate the equivalent of yesterday's low, which was then re-gained the next day."

https://admin.minyanville.com/assets/FCK_Aug2007/File/March09/20090310_rally.png

(note: i can't post the complete text since it's subscriber based, but it is accessible via trial subscriptions from either minyanville or sentimentrader, I am not affiliated with either site)

see also Kevin Depew's (at Minyanville.com) Buzz post

"Following up on Jason G's. Historic Day post, below is the chart of the Dow Jones Industrial Average from 1982. As you can see, a TD Sequential 13 printed on the week of August 13, 1982........

Similarly, a TD Sequential buy signal will likely print on the INDU next week, while a TD Combo buy signal and overlapping TD Buy Setup recorded last week...."

Mr Trade said...

Anonymous: do you have a link to that Jason Goepfert comment? Sounds interesting.

Anonymous said...

it's subscriber based but if you sign up for a free trial to Buzz & Banter you can access it

direct links are
http://www.minyanville.com/buzz/bookmark.php?id=102466
http://www.minyanville.com/buzz/bookmark.php?id=102453

Posts titled "Historic Day" & "Are We There Yet?"
http://www.minyanville.com/library/search.htm?search=1&send=1&oid=0&q=jason

Mr Trade said...

No thanks, just wanted to see the images it was referring to. I have a few reasons to be bullish for the next few weeks, one is that if you look at the Max Pain for the March SPY options it is set around $77.

Mr Trade said...

I'd love to see a 'max pain' study here if it is at all possible to backtest.

gingersue said...

I'd love to see if anyone can figure out what Lowry's service means by 90% "points gained". I remember being a subscriber many years back and they said this can be obtained by regular news sources, but I could never figure it out.

Mr Trade said...

If you read their paper it explains the 90% points rule, it just means the ratio of high-open to open-low has to be over 9.

Anonymous said...

one interest aspect of Tuesday's action, is that the ARMS index showed back to back readings of 0.5 and lower. In the past that, with very little exeptions, gave bullish implications for stocks.

gingersue said...

Mr Trade said.."If you read their paper it explains the 90% points rule, it just means the ratio of high-open to open-low has to be over 9.""

I'm still confused. Could you please rephrase that? Thanks!

Jan said...

Looking for the Lowry oscillator.
It uses up/down volumes and prices together
Downside Volume equaled 90.0% or more of the total of Upside Volume plus Downside
Volume, and Points Lost equaled 90.0% or more of the total of Points Gained plus Points Lost.

pls see pdf here http://www.mta.org/eweb/docs/2002DowAwardb.pdf

"On April 3rd, Downside Volume equaled 90.8% of the sum of Upside plus Downside Volume:
1,439,436,850 / (146,576,520 + 1,439,436,850) x 100 = 90.8%
AND, Points Lost equaled 90.7% of the sum of Points Gained plus Points Lost:
1447 / 148 + 1447) x 100 = 90.7%
The historical record shows that 90% Downside Days do not usually occur as a single
incident on the bottom day of an important market decline, but typically occur on a number of
occasions throughout a major decline, often spread apart by as much as thirty trading days. For
example, there were seven such days during the 1962 decline, six during 1970, fourteen during the
1973-74 bear market, two before the bottom in 1987, seven throughout the 1990 decline, and three
before the lows of 1998. These 90% Downside Days are a key part of an eventual market bottom,
since they show that prices are being deeply discounted, perhaps far beyond rational valuations,
and that the desire to sell is being exhausted."

They went thru all major market bottoms and tried to fit an indictor.
Does anyone have anything like this?

As another comment noted - it should only be used after 90" down days have occurred to show a change in direction..

so where do I get this indoctor..been looking everywhere!! or even the stats of up and down and volume and price for the S&P500 would do perhaps.. I could work them out myself in excel?
Thanks
Jan