Bears who counted on a breakdown of a seeming head-and-shoulders pattern (another eloquent reminder of the folly of believing that shapes on charts dictate global capital flows) have been taken to the woodshed with a high momentum rise in stocks. Specifically, we've seen back to back strong days in the Demand/Supply indicator, which tracks the proportion of stocks closing above the volatility envelopes surrounding their short-term moving averages to those closing below their envelopes. Tuesday saw a near 10:1 ratio of Demand to Supply (upside momentum to downside momentum) and Wednesday was about 15:1.
When we've had back to back days of 5:1 (or greater) Demand to Supply going back to September, 2002 (when I began archiving these data), the next five days in the S&P 500 Index (SPY) have averaged a considerable loss of -1.73% (6 up, 12 down). That is quite a bit weaker than the average five day change of .06% (928 up, 767 down) for the remainder of the sample.
By the time we've had consecutive high momentum days, it appears that--in the short run--the bulls are all in and we've tended to give back some of those gains. Indeed, after a single day of greater than 10:1 momentum, the next four trading days have averaged a loss of -1.22% (10 up, 17 down). Chasing highs after several days of strength, overall, has not been a winning strategy in the short run.
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Thursday, July 16, 2009
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That's very perceptive of you to notice that chart traders do so because their charts are "dictating" to them, while your analytical analysis is more rightly "suggesting" and "appearing" to show things. lol
something to think about...
>>
>> Washington DC Metro Station on a cold January morning in 2007. He
>> played six Bach pieces for about 45 minutes. During that time approx 2
>> thousand people went through the station, most of them on their way to
>> work. After 3 mins a middle aged man noticed there was a musician
>> playing. He slowed his pace and stopped for a few seconds and then
>> hurried to meet his schedule.
>>
>> 4 mins later:
>>
>> the violinist received his first dollar: a woman threw the money in
>> the till and, without stopping, continued to walk.
>>
>> 6 minutes:
>>
>> A young man leaned against the wall to listen to him, then looked at
>> his watch and started to walk again.
>>
>> 10 minutes:
>>
>> A3 year old boy stopped but his mother tugged him along hurriedly, as
>> the kid stopped to look at the violinist. Finally the mother pushed
>> hard and the child continued to walk, turning his head all the time.
>> This action was repeated by several other children. Every parent,
>> without exception, forced them to move on.
>>
>> 45 minutes:
>>
>> The musician played.Only 6 people stopped and stayed for a while.
>> About 20 gave him money but continued to walk their normal pace.
>> He collected $32.
>>
>> 1 hour:
>>
>> He finished playing and silence took over. No one noticed. No one
>> applauded, nor was there any recognition.
>>
>> No one knew this but the violinist was Joshua Bell, one of the best
>> musicians in the world. He played one of the most intricate pieces
>> ever written, with a violin worth $3.5 million dollars. Two days
>> before Joshua Bell sold out a theater in Boston where the seats
>> averaged $100.
>>
>> This is a real story. Joshua Bell playing incognito in the metro
>> station was organized by the Washington Post as part of a social
>> experiment about perception, taste and people's priorities. The
>> questions raised: in a common place environment at an inappropriate
>> hour, do we perceive beauty? Do we stop to appreciate it? Do we
>> recognize talent in an unexpected context?
>>
>> One possible conclusion reached from this experiment could be:
>>
>> If we do not have a moment to stop and listen to one of the best
>> musicians in the world playing some of the finest music ever written,
>> with one of the most beautiful instruments ....
>>
>> How many other things are we missing?
Bruce, I found that a curious statement as well, somewhat out of character for him. Me thinks Dr. Brett has been working too hard. Take a break man!
I wonder how many of the '08-'09 bear market rallies skew your data such that those high demand days preceed negative returns?
There must be a lot of bitter bears. Grrrrowl. Don't worry about the woodshed because it isn't always bad. Why do people always give the woodshed a bad name anyway, what's wrong with wood?
There will always be a time to sing. Everyone has their day, and one day it may be you and not the other.
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