The market has seen a lot of finishes near the top of its
daily range lately. When the market
consistently closes near the high of the day it suggests optimism on the part
of traders. This end-of-day optimism is now at a level that suggests it is overdone
and there is a good chance of a pullback. The study below was last seen in the 8/21/12
blog and it exemplifies this concept. I have updated all of the statistics.
While the downside edge appears to remain in place for a
full week, most of the edge has been realized over the 1st 2 days.
Note: To calculate the “8-day Average Closing % Range” I am
simply measuring where in the daily range SPY closed each day. For instance if
it traded at a low of $146.00 and a high of $147.00 and closed at $146.75, then
it would have closed in the 75th percentile of the daily range. A close at $146.50
would have meant 50%.
I then take a simple moving average of the last 8 days. If
that average goes from below 75% (where it usually is) to above 75%, the study
is triggered.
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