Wednesday, July 08, 2009

Morning Briefing for July 8th: Three Consecutive Weak Trading Days


Once again I'll be blogging from my meetings with traders at a proprietary trading firm and will do my best to pass along nuggets of insight as the day progresses. My take at this point in the morning (4:51 AM CT) is that U.S. stock index futures are holding up pretty well, given the weakness in stocks overseas and the commodity weakness. As always, I'll update markets (and the blog) via Twitter during the day (follow here).

Here's a piece of research I'll be sharing: We've traded below the S2 support level for three consecutive days. Going back to 2000, when that has happened, the S&P 500 Index (SPY) has averaged a subsequent three-day gain of .25% (112 up, 69 down). By contrast, the remainder of the sample has averaged a three-day change of -.06% (1136 up, 1060 down). So while indicators look bearish at this point (see Twitter update), note that there is no bearish edge going forward when we've had three consecutive weak trading days. More to come...

6:44 AM CT - Here's a nice technical recap of the markets, emphasizing the intermediate-term downtrend. Apropos of Cobra's comments, I would emphasize that we now have fewer than 20% of SPX stocks trading above their 20-day moving averages and new 65-day lows now outnumber 65-day highs. As noted in my Twitter update earlier this morning, 34 of the 40 stocks in my SPX basket (highly weighted issues evenly chosen from eight sectors) are trading in short-term downtrends.

8:10 AM CT - Above we see the Market Delta chart for pre-market ES, which shows us trading in an extended overnight range not far off yesterday's pivot level. I would expect a test of yesterday's lows if we cannot sustain a move above this overnight range. More to come via Twitter.
.

3 comments:

ASinclair71 said...

Although we traded below S2 support on Monday we did not close below it. Is the current past three days still a valid comparison versus your back testing?

Brett Steenbarger, Ph.D. said...

Hi ASinclair,

Yes, the pattern is simply based on touching S2, not closing below it. Patterns based on closes do offer good info as well--

Brett

John said...

I wish you could include variance along with the mean you quote for these stats so that one could get an idea for statistical significance - although the probability distribution is unlikely to be known (and normal)