Four Consecutive Up Days - What Next?

We've had four consecutive up days in SPY, but that's not the most unique feature of recent action. Rather, of the 66 instances of four consecutive days that we've had since 2003 (N = 748), this most recent episode is the weakest of all in terms of percentage price change. On average, when we have four consecutive up days in SPY, the average price change is 2.61%. The past four days, we've seen a rise of only .84%.

In general, there is no edge over the next four days when we look at four consecutive up days in SPY. The average four-day change for the sample overall (N = 748) is .18% (424 up, 324 down). After four up days, the average four-day change is .13% (40 up, 26 down).

When we perform a median split on the sample of consecutive four-day rises, however, a pattern emerges. The strongest four-day periods in the sample (average price change = 3.5%; N = 33) average .32% over the next four days (22 up, 11 down). The weakest four-day periods in the sample (average price change = 1.72%; N = 33) average -.05% over the next four days (18 up, 15 down).

What we see, then, is a momentum effect: Four consecutive rises that produce a strong price gain show some upside continuation over the next four days. There is no such upside continuation when the four consecutive rises do not produce strong price change, such as has been the case over the last four days. This does not provide us an edge to the downside; rather, it suggests that there is no significant upside edge despite the short-term uptrend.