Tuesday, February 15, 2011

This Study Suggests the Market is Due for a Pullback

Since the 1/28 market drop due to Egyptian protests the market has risen without hardly a pause.  It has now been 2 weeks since the last time SPY closed above its 5-day moving average.  The 5-day is quite short-term so this is a fairly rare occurence.  The study below examines other instances where this has happened.


Such persistence doesn’t typically last much longer before a pullback is seen. We see above what appears to be a decent downside edge.  It appears most of the downside damage is done in the first 2 days.

4 comments:

Contrarian said...

hi. I´m trying to understand from where you get that 89% probability.

I don´t see it in the table or I´m confused.

Rob Hanna said...

It's not in the table. It is a separate piece of info. It simply looks at whether there was a close below the "entry" or "trigger" price at any point in the next 4 days. So if it closed lower day 1 but then rose and was trading higher a few days later, it would still count. You just need 1 lower close in the next 4 days to count for that stat.

Rob

Contrarian said...

ah ok, thank you. Now I understand.

I have other question.


What is the probability of any given day to see a close below that day in the next 4 days?

Rob Hanna said...

Fot that time period it appears a little under 70%.