Heavy NASDAQ Selling: A Pattern That Hasn't Changed

We've seen heavy selling in the NASDAQ 100 Index (QQQQ) over the past four days, with the NASDAQ TRIN (Arms Index) averaging a whopping 2.15. Since March, 2003 (N = 842 trading days), when the four-day NASDAQ Arms Index averages over 1.5 (N = 71), the next four days in QQQQ average a very solid gain of 1.29% (50 up, 21 down). That's much stronger than the average four-day gain of .13% (411 up, 360 down) for the remainder of the sample.

By now, we've learned that patterns can shift. So I looked at the four-day NASDAQ Arms Index pattern since 2005 to see what has happened next. When the four-day Arms Index has exceeded 1.5 (N = 18), the next four days in QQQQ have averaged a gain of .62% (13 up, 5 down)--again much stronger than the average index performance. Interestingly, the edge has seemed to be on a multiday basis; the next trading day, we don't see a bullish edge.

My recent analyses are highlighting the importance of choosing the proper lookback periods for assessing market patterns and tendencies.