Tuesday made it two days down in a row, as the S&P 500 Index (SPY) registered yet another 10-day low.
Since 1989, there have been 478 occasions in which we've had two days down in a row, culminating in a 10-day low. There is a bullish bias from one to five days out: a tendency to bounce following weakness. For example, the next day in SPY averages a gain of .20% (293 up, 185 down) vs. a gain of .01% for the remainder of the sample (2399 up, 2275 down). Five days out, SPY averages a gain of .62% (295 up, 183 down) vs. an average gain for the rest of the sample of .10% (2567 up, 2107 down).
It's easy to get bearish after breaking out of a multiday range to the downside. Historical investigations are helpful checks on our biases, encouraging us to examine all possibilities, rather than get locked into easy assumptions.
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2 comments:
Hello Brett,
I have just met your blog (linked by Carpatos’ Site) and I would like to say that it’s the best trading blog I’ve ever read. I have always thought that psychology is the most important issue to deal with if you want to trade for a living, and after reading some of your previous posts I definitely found them very useful for trading. I’ve traded since 2007 and it’s very encouraging to find blogs like yours.
Congratulations for your blog,
Regards from Madrid,
Javier
"Since 1989, there have been 478 occasions in which we've had two days down in a row, culminating in a 10-day low."
But there have only been 107 occasions since 1989 in which we've had two days down in a row, culminating in a 10-day low, where on the first day I had Honey Comb for breakfast, and on the second I had sugar smacks.
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