Daily Commentary - Posted on Tuesday, November 29, 2011, 6:36 PM GMT +1

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Nov Tuesday 29

A Very Strong Follow-through Day ?

UPDATE

The SPY (S&P 500 SPDR) closed higher on the day, but NOT above Monday’s high. Therefore the first setup ( the SPY closing higher on November’s release of the Consumer Confidence Index ) had been triggered, the second one ( the SPY closing above the previous sessions high immediately following a rally day) did not.

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At time of writing (1:33 PM ET), and backed by an upside surprise on today’s release of November’s Consumer Confidence Index (now at 56.0 – w/ 1985 = 100 -, up from 40.9 in October), the SPY (S&P 500 SPDR) is on the verge of closing higher (and potentially above Monday’s high), for a (potentially) very strong follow-through day to yesterday’s rally, defying the odds for a lower close after a bounce back from the oversold levels in conjunction with a spike in market breadth ( see Bouncing Back from Oversold Levels ).

Historically, a higher close on November’s release of the Consumer Confidence Index and a strong follow-through day immediately following a session where the SPY had left an unfilled gap up on the close of 0.75%+ (intraday low greater than the previous session’s high) had (significant) bullish implications in the past.

There have been twelve occurrences since 1990 of the SPY closing higher on November’s release of the Consumer Confidence Index . The last ten led to an immediate higher close the next day, and the SPY closed at an even higher level five sessions later, at the end of the then following week (‘two weeks later (EoW)‘), and was up at the final session of the year on all twelve occurrences as well.


In addition: Although there have been seven occurrences since 1990 only of the SPY closing above the previous sessions high (for a strong follow-through) immediately following a rally day where the SPY had left an unfilled gap up of 0.75%+ on the close, the intermediate-term outlook had always been quite bullish in the past. The SPY closed at an even higher level at the end of the then following week (‘two weeks later (EoW)‘) and at the end of the then following month (‘two month later (EoM)‘) – in this event on December 30, 2011 – on all of those seven occurrences.

Conclusion(s): If the markets would be able to conserve or extend today’s intraday gains into the close for a strong follow-through of yesterday’s rally, probabilities and odds would be heavily tilt in favor of higher prices over the course of the remainder of the year.

Have a profitable week,

Frank

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

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Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets). Index data (e.g. S&P 500 cash index) does not account for dividend and cash payments.

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Disclaimer

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.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

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

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