We posted yesterday that the S&P500 was set up for a pullback after carving out an outside day (higher high and lower low than previous day) at strong resistance and looked for follow through selling today. Didn’t happen.
In fact, the S&P500 followed yesterday’s outside day with an inside day with today’s high/low lower/higher than yesterday’s. This reflects a lack of sellers and nervous buyers.
An inside day following an outside day is a relatively rare three-day pattern and has initially happened on six times since the current bull market began on March 6, 2009. In every case, the post 5-day return on the S&P500 was positive, averaging 2.08 percent.
Today’s pattern and run up looks very similar to the one made on January 31, 2011. The S&P500 rallied 22 percent in 108 trading days from the August 26, 2010 low into the inside/outside three-day pattern. It added another 4.4 percent in the next 14 trading days before correcting.
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