Thursday, March 02, 2006

Up Day, Down Open: Real-Time Update

At the time I'm writing this (7:56 AM CT), we're looking at a down open in SPY after an up day yesterday. I found 123 days since March, 2003 (N = 755) in which we were up more than .75%. When the market opened down the next day, the average change from open to close was .15% (26 up, 23 down). When the market opened up the next day, the average change from open to close was -.08% (35 up, 38 down). It thus appears that a down open does not necessarily mean that the day has a bearish cast after an up day and, in fact, may even be slightly bullish.

When the market opens, I then look to see which sectors are strong and weak and conduct lead-lag analyses to further update forecasts. This is the essence of dynamic modeling, as opposed to trading fixed models.

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9:54 AM (CT) Update - Notice how the semiconductor strength and then the breakout in the NYSE TICK with the buy programs in the Russell stocks preceded the S&P 500 move above its open. That made buying weakness in ES per the analysis above easier, knowing that these are strong lead relationships. I hope this opens readers' minds to different ways of looking at real time market action.