Thursday, January 05, 2006

Three Strong Days in QQQQ: What Next?

The NASDAQ market (QQQQ) has been up approximately 3.74% in the past three days. Since January, 2003 (N = 756), we've had 62 occasions in which QQQQ has risen more than 3% in a three-day period. Three days later, the market is up by an average of .41% (41 up, 21 down), better than the average gain of .21% (407 up, 349 down) for the sample overall. Moreover, the strength following a strong three-day period tends to be greater when the prior three days have been up on above average volume. For example, when the market is up over 3% over a three-day period on above average volume (N = 31) based on a median split, the next three days are up by an average of .48% (22 up, 9 down). Note that Friday will be an unusual day due to the big unemployment number coming out in the morning, so generalizing from the past is more chancy than usual. Nonetheless, we've had solid strength on solid volume over three days and--all else being equal--that leads to residual strength over the next three days.

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