Friday, June 26, 2009

A Study Suggesting Short-term Downside

Below is a study that has been shown a few times in the Subscriber Letter. It popped up last night via the Quantifinder. It looks at what happens when two days of strong breadth fail to take the SPX to a new 10-day intraday high. I’ve re-run the stats and posted them below.

(click table to enlarge)

The failure to make a 10-day high after two strong up days suggests there was a strong move down prior to this. Most often the strong down move will reassert itself or at least cause a pullback. As a point of comparison, below are the numbers when the back-to-back the strength does coincide with a 10-day high:

(click table to enlarge)

Strong negative expectations turn positive under this scenario. I've shown before how positioning is important when interpreting action. This is another example of that.


Daniel said...

Thought provoking, Rob.
"Positioning is important when interpreting [Market]action." Very right--knowing where the Market IS allows an educated (as opposed to blind) guess as to where it’s going.

The more nuance-filters one can throw at it the better.. until 'diminishing-returns' sets in, then stop. That was always G.Appel's method.

Positioning also includes awareness of where one is in terms of monthly seasonality (I use classical Fosback Mo/Holiday); annual Market seasonality; and unique Sector-seasonalities, if one is leaving the broad indexes for the narrower focus...


Keith Richards said...

brilliant article...

one question i had was do you use closing high or intraday high? also i would imagine if everything was doing the same then the signal would more effective.

e.g. at moment
quite a number of indices are making 10 day highs (closing prices since 15th june)

shanghai a shares (shashr:ind)
H Shares (hscei:ind)
Taiwan (twse:ind)

these have also been the leaders in the market this year.

would this cause you to be less bearish?