Daily Commentary - Posted on Wednesday, January 11, 2012, 10:25 PM GMT +1

1 Comment


Jan Wednesday 11

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)


Table I
SPY w/ 3 month high, NYSE McClellan Oscillator > 100

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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)


Table II
SPY w/ 3 month high, NYSE McClellan Oscillator > 100, positive for 10+ days

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Conclusion(s)

Probabilities and odds are tilt in favor of a continuation of the rally in the market’s …

Have a profitable week,

Frank


Disclosure: Long Market Vectors® Retail ETF (RTH) – Short SPDR® S&P 500® ETF (SPY)
(Pairs Trade)

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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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Comments (1)

 

  1. William says:

    Frank,
    What would be the date of the one month later scenario in our current situation?

    Would you say these are unusually strong odds?

    How many times a year do you see such odds?

    Thanks
    Bill

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