Tuesday, February 28, 2006

Five Day High...Then Five Day Low

Yesterday we closed at a five-day high in SPY; today we closed at a five-day low. That's quite a reversal. I decided to consult the historical record and see what tends to happen next.

Perhaps the main finding is that this is a rare occurrence. I found only 9 such instances since January, 2003 (N = 790). That means that we need to take any analysis with multiple grains of salt.

Two days after the market made its five-day low (after having just made a five-day high), SPY was down by an average .17% (3 up, 6 down). That's quite a bit worse than the average two-day gain of .09% for the sample overall.

I have yet to compile my Demand/Supply numbers, but if they're as negative as I expect, that too would bode poorly for the bulls in the short run. Keep an eye on the Trading Psychology Weblog later tonight, and I'll have those numbers posted along with a brief analysis.