Thursday, May 17, 2012

A Rare But Intriguing Setup Based On The Recent Weak Closes

Regardless of whether the market has closed up or down, SPY has consistently closed near the lower end of its range over the last 5 days. Below is a list of all the instances where SPY closed in the bottom third of its daily range for five days in a row, and their returns over the next two days.

What I find most remarkable about this study is not the fact that all 6 instances closed higher 2 days later, but that the last 5 never saw any drawdown over the next 2 days.  That means they gapped up on day 1 and went 2 days without filling.


j'adoube said...

yup, just another perfect record -- blown to bits

Johan Lindén said...

Nice study, but too few observations to mean anything. Which we also saw today at opening.

Daniel said...

It's always of great interest when an actual result lands outside the "standard deviation" bands of some probabilistic study based on past similar occurrences.

Today's decline, like many others the past few days, is flying in the face of numerous regression-based studies.

Marc Faber has openly stated he believes a flat out market crash is a serious possibility, maybe even a likelihood. The interview I refer to came a few days ago, at much higher market levels. His reasoning is fundamentally-based, sovereign debt leveraging concerns.

In 1987 many reliable regression indicators and oscillators absolutely blew out, and only THEN did the crash occur-- taking them out to the stratosphere.

Anomalies are always of interest to the prudent speculator. There is potential secondary insight to be had, as to underlying dangers, from a regression study that majorly points one way--and an actual result that comes out another.

Market Owl said...

It just tells you how weak this market is, all the stats and historical data are screaming buy, yet we keep selling off. When a market gets oversold and sells off even more, without panicking, that is bear market action.