Daily Commentary - Posted on Monday, February 7, 2011, 7:29 PM GMT +1
SPY UP > 2.5% MtD on Day 1 of Week 2
At time of writing (2:30 PM), the SPY (S&P 500 SPDR) is currently up +0.79% on the day, and up +2.71% month-to-date on the first session of the second week of the current month.
But even taking into account that mean-reversion came a bit out-of-favor since the bull-run started a couple of month ago, historically probabilities and odds were heavily tilt in favor of some short-term mean reversion and consolidation of the then recent gains during the first couple of sessions of a month.
Table I below shows the SPY‘s performance over the course of the then following four sessions (regularly the remainder of the week) in the event the SPY closed up > +2.5% month-to-date on the first sessions of the second week of the current month.
The market’s chances for a higher close one to four sessions later were always (for every single session) at or around 37% (almost 1 : 2), significantly lower than the SPY‘s at-any-time chances for a higher close one to four sessions later (52.71% | 53.89% | 55.08% | 55.41%). But more eye-catching are the respective gains / losses. The SPY closed higher 1.0%+ two sessions later on only 2 , but lower -1.0%+ on 20 (!) out of 48 occurrences. The median change over the course of the then following four sessions is always negative, with day three leading the pack (-0.65%).
Probabilities and odds are (party heavily) tilt in favor of some consolidation of recent gains during the remainder of the current week, but don’t overstay your welcome on the short side of the market (the market may position it selves again for a resumption of the uptrend).
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Disclosure: No position in the securities mentioned in this post at time of writing.
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