Tuesday, August 11, 2009

SOX: Big move coming?

Review of last signal: We had a down day across the boards today, however as discussed last night here, the odds had favored a higher close on the BKX based on recent divergence with GS (as odd as those 'odds' sound). The BKX outperformed the market all day, but paired much of it's gain by EOD to close up barely in the green. Nonetheless, it was good enough to have successfully fulfill the setup discussed last night.

SOX Buy Signal:
Today the SOX closed down for the fourth straight day, painting 4 consecutive lower lows. I looked back over the past decade for similar occurrences, and added one more filter. I also looked for setups where the SOX was trading above it's 200MA.

The results: In the last decade, there were 43 occurrences. In 33 cases (77%) of the time, the market closed higher within three days for an average of +1.8%. Thus the odds favor a decent move for the SOX over the next 3 days.

A variation to this study would be to filter for when RSI(5) falls below 30, as was the case today. In this study, there were 17 occurrences in the last decade, with 15 (88%) closing higher within TWO days.


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