Daily Commentary - Posted on Saturday, October 23, 2010, 10:35 PM GMT +1

4 Comments


Oct Saturday 23

Noticeable Problems at 3-Month High

With respect to the (admittedly very specific) setup triggered on the close of last Thursday’s session ( see my posting (Negative) Outlook for Friday, October 22, 2010 ), it was the second out of 12 occurrences (since 1990) where the SPY did not post a lower low, but closed higher on the then following session as well for a fresh 3-month (multiple-month) high. For the time being the prevailing theme not only seems to be ‘buy the dip‘, but ‘if in doubt, go/stay long‘ (instead of ‘stay out‘) as well.

But with respect to Friday’s fresh 3-month high (on the close), two noticeable problems caught my eye: First the fact that the SPY had already posted a series of higher intraday highs above Friday’s close over the course of the last couple of sessions – in this event on 4 out of the previous 7 sessions to be exact – (somewhat ‘stalling‘ at a multi-month high, implying a short-term negative tendency), and secondly the fact that new NYSE 52-week highs came in at a very low level (the second lowest reading of the last 10 sessions) – despite the fact that the SPY closed at a fresh multiple-month high –  .

Table I below shows all occurrences and the SPY‘s historical performance over the course of the then following 1, 2 , 3 , 4 and 5 sessions where the SPY had closed on a fresh 3-month high in the past, but at the same time had posted an intraday high above the 3-month high on at least 4 out of the previous 7 sessions (‘stalling‘ at a multi-month high).

Although 7 occurrences only is nothing to read anything statistically significant into it, at least noteworthy is the fact that historically the SPY had closed lower the next session on all 7 occurrences, and was still trading at a lower level 3 sessions later on 6 out of 7 occurrences.

Table II below now shows all occurrences and the SPY‘s historical performance over the course of the then following 5 , 10 , 15 , 21 (1 month later) and 42 sessions (approximately 2 month later) where the SPY had closed on a fresh 3-month high in the past, but at the same time new NYSE 52-week highs came in at a very low level (at least the second lowest – or the lowest – reading of the last 10 sessions).

Again 14 occurrences only is nothing to read anything statistically significant into it, but at least noteworthy is the fact that historically the SPY has shown a short-term slightly negative tendency (4 higher and 10 lower closes 5 sessions later – no edge is provided with respect to the then following 1 to 4 sessions), but a remarkable positive tendency with respect to a higher close 3 weeks (on 13 out of 14 occurrences) and 2 month (on 12 out of 14 occurrences) later. In addition, this was the 3rd occurrence in 2010 where the SPY had posted a fresh 3-month high when at the same time participation in new NYSE 52-week highs was very poor (up to now the maximum number of occurrences in a single year were 2, in 1999 and 1997).

Conclusions:

The market may be prone to some profit taking over the course of the next week, but might remain on firm footing over the next two months (but the very small sample size allows for a somewhat wobbly forecast only).

P.s.: I checked for those occurrences as well where the SPY had posted a fresh 3-month high in the past, when at the same time either volume came in at a very low level (like on Friday’s session), or the SPY had posted its narrowest intraday range of the last x sessions (e.g. 10 sessions), but found no particular short- and intermediate-term bias / tendency.

Successful trading,

Frank

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

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(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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Comments (4)

 

  1. […] This post was mentioned on Twitter by Frank Hogelucht and Gordon Gekko, Brokerz S&P 500 news. Brokerz S&P 500 news said: RT @TradingTheOdds – New blog post: Noticeable Problems at 3-Month High URL: http://brokerz.com/_857q/ ($$ $SPX $ES_F $NDX $NQ_F) […]

  2. Jeff says:

    Am I missing something? I’m curious how Friday’s SPY close of 118.41 was a fresh high close when Monday closed higher @ 118.54? Are you assuming it’s close enough?

    • TradingTheOdds says:

      Jeff,

      on Monday, October 18, the SPY closed at 118.28, not 118.54. I reported that bad data point to Stockcharts (if you get your data from their web page), and Stockcharts already adjusted the close to 118.28.

      Best,
      Frank

  3. […] Visit link: Noticeable Problems at 3-Month High […]

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