Friday, January 29, 2010

From A 50-Day High To A 50-Day Low In 8 Days

Amazingly, Thursday’s close marked a 50-day low in the S&P. It was just last week that the S&P closed at a 50-day high. Moving from a 50-day closing high to a 50-day closing low so quickly is quite rare. I only found 6 other instances. Unfortunately, while it appears rare, it doesn’t appear predictive. Below is the stats table.

Examining the individual charts left me with no deeper insights. I’ve listed the dates of each instance in case anyone else would like to have a closer look.


Daniel said...

A market contraction of 4--7% can happen at any time, and over any time frame, and be nothing more than a zag on a longterm chart.

If it happens over 4-7 days it's called dramatic. If it happens over 4-7 weeks it's called water torture. But it still looks the same on a Point and Figure chart. The merchandise got reset, from a too-high level, to a lower level.

Rob, have you looked at the backdrop of Money Supply Growth, as a macro-variable, as to how such rare patterns as these resolve themselves? Contracting M2 is NOT a boon to a market trying to find a support level. Expanding M2 would be.

Also, have you looked at any of your time-stretch variables, in this study? Or perhaps stretch (at the time of rapid reversal) above a set of std EMAs? That might aid pattern recognition.

Datapoints need to kiss their longterm MAs periodically. Our particular market, here and now, has spent a ton of time above the trailing major MAs without re-setting to the average.

This could all just be a sneeze, or not... but the beauty of the Point and Figure angle of view is that it just deals with numbers-- pushing up into the NEXT box, or being trapped in THIS box, or falling into a lower box. How rapidly is not that important. The violence of the sneeze is not that important. Just the top-to-trough final negative number on the Bull-run reset... before the next recovery HI is hit.

The pattern one always properly fears, EVERY day, with 1% of their brain, is the 1987-like one-day crash. Every gold-plated, time-honored oscillator just flat blew out in the days preceding that event.

Oversold kept getting oversolder. And the ‘odds’ kept getting juicier for a ‘bounce’.

We’ve had sentiment readings in the high complacency zone for so long now that there is complacency regarding these sentiment readings! Long forgotten now are those horrid one-day affairs of autumn 2008, with scattered days of 4+% swings.

..Or, is this market particularly similar to February 2007--one of your listed dates?

That sharp contraction had a sense, at the time, of a SHOT across the bow, to quote the nautical phrase. This has a similar feel, at least to my subjective sense of it. However, if it resolves such that the next significant move is UP, that same sense would tell me to start shifting to more defensive interpretations of pattern forms and stat tables, going forward.

Probability-traders, who do not use stops, but rather sizings and parameters, MUST always be extra alert to the danger of the blowout rarity day.

It’s making me a tad nervous that Rob keeps saying “never seen this before” and “rarely seen this before”... that’s the kind of talk one hears around and preceeding the so-called ‘outlier’ events...


Dr Bill said...

Very nice comment, Daniel. I have to tell you, I love P&F for knowing what's on defense and what's on offense (global signals), but as a now-frequent trader, P&F is the ultimate water torture.

Mathematically, any stock signal that breaks a cycle and does not revert to the MA within a reasonable amount of time in an orderly way will experience increasing instability until it shoots through a support. That was precisely what happened on Wednesday. I think the algos had something to do with the stability of the climb since Nov. I'll be interested to see how they damp out some of the volatility over the next week, if they can. Depends on what the Real Money wants to do.

BTW, Gene Stunkel over at has signals that just went Double Negative (Long/Short term) for the 1st time since early last year. The Short-term signal has been negative for a couple weeks and now the Long has joined it. Looks like the market will have a few weeks of Down in it. His market signals are really excellent. I use his ETF package for my IRAs, (allows me to short some of the markets) but I back it up with my own "confidence building" data.