Wednesday, November 14, 2012

What the Recent String of Poor Closes Could Mean for Today

Where the market closes within its daily range can be an indicator of sentiment.  Over the years I have shown studies indicating persistent closes in one direction often lead to a reversion. An example of overly-optimistic closes was shown in the July 5, 2012 blog post. We are now seeing a setup suggesting excessive pessimism. Tuesday was the fifth day in a row that SPY closed in the lower half of its daily range. The study below was shown in the 12/20/11 subscriber letter (and again last night).  It examines 1-day returns following similar strings of poor closes.

The numbers here appear to be strongly compelling and indicate a possible upside edge for Wednesday.

Also, a reminder to readers that I will be speaking at the Las Vegas Traders Expo on Saturday.  In my talk I will be sharing a lot of my favorite overnight research.  I look forward to meeting several of you!

No comments: