Studies - Posted on Thursday, March 26, 2009, 10:28 PM GMT +1

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Mar Thursday 26

Consecutive Market Up/Down Days and their Magnitude of Change

Consecutive Market Up/Down Days and their Magnitude of Change

Michael at MarketSci made an interesting post about The Speed at which the Market Rises and Falls.

I’d like to provide an additional view on the speed at which the market rises and falls on consecutive up and down days, differentiated between bearish and bullish periods in the market.

The table below shows – for the time frame since 01/03/2007 and for x (1 up to 6) consecutive up and down days- the number of occurrences , the average percentage end-of-day (EOD) change,  the average percentage change between the intraday high and the previous close and the average percentage change between the intraday low and the previous close (average daily range)  on the xth consecutive up/down day.

up-down-days-20090325

(click on image to enlarge)

How to read this table: using the column with 4 consecutive up days as an example: Since 01/03/2007, there were 16 occurrences with 4 consecutive up days in the S&P 500. The average end-of-day gain on the 4th up day (not the average end-of-day gain of those 4 up days) was +0.75%, the average high +1.01% above the previous session’s close and the average low -0.33% below the previous session’s close.

The table shows that

  • with every consecutive up day, the up-trend looses steam, average end-of-day and intraday gains are contracting/eroding,
  • by contrast on consecutive down days the (negative) magnitude of change -concerning both the average end-of-day loss and and the average intraday ow- accelerates with every additional down day in the market.

I wanted to check if these observations would be mirrored during bullish periods in the market. The table below shows – now for the time frame between 10/01/2003 and 12/29/2006 and for x (1 up to 6) consecutive up and down days as well- again the average percentage end-of-day (EOD) change,  the average percentage change between the intraday high and the previous close and the average percentage change between the intraday low and the previous close on the xth consecutive up/down day.

up-down-days-20090325-2

(click on image to enlarge)

The table shows that during the bull market between 10/01/2003 and 12/29/2006

  • average end-of-day and intraday gains/losses were almost completely homogeneous, inside consecutive up days down and downdays as well as cross-border between up days and their respective counterparts (down days);
  • the market shows a much higher volatility -twofold up to threefold- since 01/03/2007 (even on up days) then during the time frame between 10/01/2003 and 12/29/2006.

Successful trading
Frank

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