Monday, May 6, 2013

This Pattern Suggests We Could See More Upside In The Next Few Days

Short-term strength is often followed by short-term weakness, but when that short-term strength is unusually impressive, it can create a situation where that extreme strength will beget more strength. When the market leaves an unfilled up gap that is considered a sign of strength.  When it does it 2 days in a row and closes at a 50-day high, that can be considered exceptional strength. That is what happened on Friday, and it triggered the study below, which I last shared on the blog on 9/10/12.  All stats are updated to present day.

The size of the follow-through isn't terribly large. But it has been very, very consistent that at least some follow through was achieved in the next few days.

1 comment:

Daniel said...


Yet another interesting study.

When people try to start a car which is hard to start, they pump and pump the gas pedal to prime it. They hope they'll start it rather than flood it, that's the intent, but sometimes they flood it. Maybe the Fed has done this.

It has seemed for a while now that M2 and M1 type measures of monetary liquidity have been more correlated with US market action than economic reports, or even economic leading-indicators. Could this study be painting the picture of a coming significant market breakout to non-marginal new highs?

If so it would occur as everyone goes “But it can't happen”. Job growth is too slow, profits can't sustain, the commodities are not leading, Europe has zombie banks. “And besides it's May and everyone but bears is sposed to go away.”

Unloved breakouts are the best to jump upon, because they have nice low 5day ATRs. They just grind and grind, as heros try to short each new level.