Friday, September 18, 2009

Persistent Higher Highs Bullish in Short and Intermediate Term

Both the S&P and Nasdaq 100 chalked up their 10th consecutive higher highs today. It is natural and perhaps logical for one to think this market is overextended and that we should expect a pullback. But the markets do not often behave according to our 'logical' expectations. This may be good example. Indeed the market is overextended by various measures, however the data suggest that we should be cautious on the short side. There have been only 17 other instances where the S&P 500 has made 10 consecutive higher highs. In 14 cases (or 82.4% of the time) the market went on to post a higher close within 3 days. In the table below, i have also included the performance of the S&P 20 days later (column N20). Note that in 15 out of the 17 cases (or 88.2%) the market was trading higher, often comfortably so.

(Note: column '3Day+' displays the number of days it took the S&P to close higher within the next 3 days. a value of 0 indicates the market did not close lower within 3 days)

TickerDate/TimeCloseStreak3Day+%Chg N1%Chg N2%Chg N3%Chg N20
SPX9/15/195431.2910.001.000.541.340.893.13
SPX6/23/195540.7510.001.000.520.590.055.52
SPX7/8/195960.0310.000.00-0.10-0.20-1.030.45
SPX6/9/196058.0010.000.00-0.05-0.02-0.16-1.07
SPX1/30/196161.9710.003.00-0.31-0.110.532.37
SPX8/1/196167.3710.003.00-0.64-0.120.460.27
SPX1/8/196476.0010.001.000.370.320.290.99
SPX1/18/196785.7910.001.000.030.330.702.89
SPX5/6/1969104.8610.002.00-0.180.230.18-2.16
SPX12/4/197089.4610.001.000.540.010.092.62
SPX1/14/197697.1310.003.00-0.54-0.131.233.75
SPX4/13/1982115.9910.002.00-0.140.310.712.96
SPX5/14/1990354.7510.000.00-0.13-0.21-0.083.24
SPX9/13/1995578.7710.001.000.840.790.690.12
SPX2/6/1996646.3310.001.000.561.511.550.88
SPX3/2/19981,047.7010.001.000.41-0.04-1.214.38
SPX3/19/19981,089.7410.001.000.860.531.463.03
SPX9/17/20091,065.4910.000.000.000.000.000.00

The same is true for the Nasdaq 100. There have been only 14 other instances where the Nasdaq 100 has made 10 consecutive higher highs. In all cases but one (or 92.9% of the time) the market went on to post a higher close within 3 days. In 10 out 14 cases (71.4%), it was trading higher 20 days later. That 71.4% rate is still significantly better than the 60.11% chance of the market closing higher 20 days later from any given day.

TickerDate/TimeCloseStreak3Day+%Chg N1%Chg N2%Chg N3%Chg N20
NDX2/13/1986139.1610.001.000.721.130.345.63
NDX1/14/1987162.6610.001.000.91-0.092.338.19
NDX5/11/1987189.2410.002.00-0.140.550.790.12
NDX2/1/1991234.4510.001.001.033.035.378.07
NDX6/3/1991280.9310.001.000.07-1.27-2.39-7.76
NDX1/7/1992339.6410.001.001.373.142.202.14
NDX6/21/1995535.5210.001.001.971.710.182.77
NDX9/20/1996743.4210.003.00-1.35-0.920.311.80
NDX11/10/19992,797.6110.001.001.873.262.8013.22
NDX8/25/20003,931.2510.001.000.580.530.95-7.86
NDX8/21/20031,314.6510.000.00-0.77-0.61-0.435.90
NDX1/9/20041,520.4610.001.001.270.280.90-1.94
NDX5/24/20051,540.4710.002.00-0.500.540.61-0.40
NDX7/22/20091,565.0010.001.002.332.182.192.02
NDX9/17/20091,721.0910.000.000.000.000.000.00

These studies suggest that any dips likely will turn out to be good short and interim term buys.

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