Monday, April 10, 2006

Dow Utilities and the S&P 500

We were narrowly higher in the S&P 500 Index, with SPY up .15%. The Dow Utilities were stronger, up over half a percent. I went back to March, 2003 (N = 781) and found 144 days in which SPY was up on the day, but less than .30%. Two days later, SPY averaged a gain of .23% (89 up, 55 down).

When I broke the sample in half based on the change in the Dow Utilities, however, a pattern emerged. When the Utilities were strong (N = 72), the two-day gain in SPY averaged .11% (42 up, 30 down). When the Utilities were weak (N = 72), the two day gain in SPY averaged .36% (47 up, 25 down).

We thus tend to see strength when Utilities underperform SPY; underperformance when Utilities are stronger than SPY. I'll be looking further at the Utilities as a possible market barometer.


yinTrader said...

Bonjour Brett

Interesting observation on Utilities v S&P when you halved the sample under study.

I am trying to follow. Utilities would refer to energy? If so, when they underperform, other businesses would benefit from lower costs? hence, your findings on the inverse relationship between Utilities and S&P.

But why do you have to half the sample?

To have Utilities as a possible market barometer would help those who trade the S&P, like me.

Sorry, if I seem naive being a novice trader.

Brett Steenbarger, Ph.D. said...


You're asking good questions that I hope to answer with further investigations. Splitting the sample in half provides a big picture view of the effect of strength vs. weakness on the S&P performance. That way, I'm not choosing some random cut point to artificially produce results.