Friday's market closed only modestly higher after first dropping, then rising, and finally falling back toward its opening price. That had me looking at markets that are little changed but have above average daily trading ranges.
Since March, 2003 (N = 734), we have had 198 days in which SPY has closed within .20% of its opening price. Three days later, the market is up by an average .29% (120 up, 78 down). This is stronger than the average change of .15% (313 up, 223 down) for the remainder of the sample.
When we look at narrow SPY days as a function of volatility (daily range), however, a pattern emerges. When the range is wider (N = 99), the following three days average a gain of .40% (62 up, 37 down). When the range is narrower (N = 99), the following three days average a gain of .17% (58 up, 41 down). This suggests that wide range days with small price change have more favorable expectations than narrow days with small price change.
Interestingly, this pattern has continued throughout the recent bull market. Of the 12 occasions since August, 2004 in which we have had a range above 1% and narrow price change from open to close, 10 have shown gains over the next three days, averaging .71%. We'd have to score this one for the bulls as we start the new week.