My last post introduced the idea of countertrend equivalence: Once we get a solid trend reading for a period of time X, the next period X tends to reverse this trend. We saw that this occurred over a five-day period: if we have a strong trend over five days in SPY, the next five days tend to run counter to this trend.
I took a look at hourly SPY data going back to 11/21/05 (N = 586). When we've had a strong uptrend over a five hour period (N = 75), the next five hours in SPY average a loss of -.08% (33 up, 42 down). That is weaker than the average five-hour gain of .04% (312 up, 274 down) for the general sample.
When we've had a strong downtrend over a five-hour period (N = 47), the next five hours in SPY have averaged a gain of .18% (29 up, 18 down). This is noticeably stronger than the sample overall.
Once again, we see evidence of countertrend equivalence. I will pursue this topic further in my upcoming Trading Markets article.
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