Daily Commentary - Posted on Wednesday, January 11, 2012, 10:25 PM GMT +1
Three Month High and NYSE McClellan Oscillator
The SPY‘s (S&P 500 SPDR) closed marginally higher today, immediately following a multi month high (as expected trading in a tight range today).
When the SPY closed at its highest level since July 29, 2011, on yesterday’s session, the record level was fully confirmed by a rising number of net advances (advancing less declining issues on the NYSE) and a NYSE McClellan Oscillator closing in positive territory on the 13th straight day, at the same time closing above the 100 threshold.
Historically, when a multi month high is confirmed by an advance-decline statistics, this had positive implications for the intermediate-term.
Table I below shows the SPY‘s performance over the course of the next couple of sessions, until the end of the respective week, until the end of the month and until the end of the then following month in the event the SPY closed at a 3 (or more) month high for the first time in a month, whilst at the same time the (ratio adjusted) NYSE McClellan Oscillator closed above the 100 threshold.
Although chances for posting another higher close one or two sessions later are significantly above the market’s random chance for closing higher one or two days later (on 4 out of every 5 occurrences – or 80% of the time – one session later), upside potential had regularly been limited (two occurrences only with a better than 1.0%+ gain two days later).
But looking out at the end of the respective month, and until the end of the then following month, probabilities and odds are (heavily) tilt in favor of (significantly) higher prices ahead. The SPY closed at a higher level on more or less 3 out of every 4 occurrences (approximately 75% of the time), but especially remarkabe is the fact that 1.0%+ moves on the upside outnumbered 1.0%+ moves on the downside by a very wide margin (14 : 2 and 17 : 3 respectively).
(click on image to enlarge)
Now Table II below shows the SPY‘s performance over the course of the next couple of sessions, until the end of the respective week, until the end of the month and until the end of the then following month in the event the SPY closed at a 3 (or more) month high for the first time in a month, whilst at the same time the (ratio adjusted) NYSE McClellan Oscillator closed above the 100 threshold, and in positive territory for at least 10 days in a row.
Out of 20 occurrences, the SPY had never been up 1.0%+ two days later, but down 1.0%+ at the end of the respective month and one month later (in this event on February 29, 2012) only once (with an associated 9 : 1 and 15 : 1 ratio of 1.0%+ moves on the upside versus downside).
(click on image to enlarge)
Probabilities and odds are tilt in favor of a continuation of the rally in the market’s …
Have a profitable week,
Disclosure: Long Market Vectors® Retail ETF (RTH) – Short SPDR® S&P 500® ETF (SPY)
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