Daily Commentary - Posted on Monday, March 15, 2010, 2:14 PM GMT +1

4 Comments


Mar Monday 15

Level of Bullishness

With Friday’s session, the market showed a level of bullishness rarely observed over the course of the last 20 years:

  • The SPY (S&P 500 SPDR ETF) closed higher on the 11th consecutive session (now 4 occurrences since 01/01/1990),
  • The SPY hasn’t posted two consecutive lower closes for 25 sessions now (25 occurrences since 01/01/1990), and
  • The SPY hasn’t posted two consecutive lower lows for 25 sessions now (25 occurrences since 01/01/1990).

Table I below shows the SPY‘s historical performance (since 01/01/1990) over the course of the then following 1, 2, 3, 5 and 10 sessions assumed one would’ve bought the SPY on the close of a session when the SPY hasn’t posted two consecutive lower closes over a period of at least 25 sessions in the past:

Historically there were only seven clusters of sessions (March 2005, January 2004, September 2003, December 1995, March 1995, January 1995, September 1993) which showed a comparable level of bullishness.

With Distribution of Returns (represents where the setup’s median return is ranked in comparison to the – ranked in descending order – median at-any-time return) at or around the 40% mark, none of those occurrences being part of the top 10% best and worst performing at-any-time sessions (except ten sessions later), and the SPY never closing higher greater than +1.54% five and +1.52% ten sessions later, upside potential will probably be limited, so a sideways trading, rangebound marked with an downside bias seems to be he most likely outcome.

This fits into the conclusions drawn from the recent streak of high RSI(2) readings (see last Thursday’s posting Implications of High RSI(2) Readings). The market showed the expected short-term (limited) upside bias and – up to now – refused to go down on Thursday’s and Friday’s session despite heavily overbought momentum indicator readings.

Successful trading,
Frank

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Disclaimer: No position in the securities mentioned in this post at time of writing.

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

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Comments (4)

 

  1. Bill says:

    Frank,
    quick q- what made you go long pre FOMC and day before yesterday. seems like its so overbaught and mean reversion not doing that great.

    • admin says:

      Bill,

      FOMC announcement sessions are one of the most positive sessions on record. I already posted the respective stats several times as part of different studies (e.g. seasonalities). Please search for ‘FOMC’ in the archives.

      Best,
      Frank

  2. James says:

    Frank,
    Just wondering about your rational for shorting today 3/18/10. Tomorrow is SPY ex-dividend day, your past study shows very strong historic upside, but obviously we are currently very overbought.

    Thanks,
    James

    • admin says:

      James,

      you’re absolutely correct, but the SPY’S ex-dividend day is a new finding and -up to now- not part of the model (I’m currently busy with a couple of other things).

      P.s.: I forgot to mention that due to option expiration a sell signal was triggered. Due to the fact that both a positive setup from SPY’s ex-dividend date and a sell signal due to option expiration were triggered, a ‘market neutral’ would’ve been the respective signal if the SPY’S ex-dividend day would’ve been part of the market model.

      Best,
      Frank

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