On Friday, we saw something unusual. After the day's steep drop, we finished the day with fewer than 10% of SPX stocks closing above their 3, 5, and 10-day moving averages. At the same time, by Friday's close, we still saw more than 50% of those shares trading above their 100 and 200-day averages. Since July of 2006, when I first began collecting these data (over 4400 days), this set of conditions has only occurred 20 times. In other words, it's been unusual to get a broad short-term decline following a broad longer-term advance.
While 20 instances is not enough for a robust statistical analysis, I do find it noteworthy that 18 of the occurrences finished higher 20 days later for an average gain of +2.66%, substantially above the average for the entire sample.
I've found that such historical queries are useful tools for framing market hypotheses. If I see evidence of buying going forward and then see that we cannot make fresh lows on subsequent selling pressure, the chances are good that I'll participate in the potential bounce. This is particularly the case if several queries drawing upon different data point to similar conclusions.
The future does not always mirror the past and, in the present situation, it would just take a further escalation of the Middle East conflict to potentially move oil prices higher and stocks lower. When the present varies greatly from historical patterns, that, too, can be information.
Further Reading:
.
Posts
