Today’s SPY action has lead to large gap ups the next day and is very bullish for the next 7 trading days.
I have modeled today’s SPY action and looked in the past to see what happened next.
Rules:
- Buy SPY when it gaps down 2% or greater and the close is 1% or more higher than the open.
- Sell X days later
- No commissions or slippage included
- All SPY history used
I have added three additional factors:
- Gap down 2.5% or greater and the close is 1.5% or more higher than the open (this is almost exactly models today’s action).
- #1 AND volume equals a 50 day high.
- Gap down 2% or greater and the close is 1% or more higher than the open AND volume equals a 50 day high.
Results:
A word about sample sizes…Of course, the greater the number of samples, the more we can generalize the results. Since this setup is fairly specific, it suffers from small sample sizes. Therefore, results may not be generalizable.
- 2% GapDn, C 1% > O = 24 samples
- 2.5% GapDn, C 1.5% > O = 9 samples
- 2% GapDn, C 1% > O AND V=50dayHigh = 7 samples
- 2.5% GapDn, C 1.5% > O AND V=50dayHigh =4 samples
Results are very bullish for the next day, with the lowest return averaging 0.75% and the best return averaging 4.09% Due to these results, I believe there is a good chance that tomorrow will see strong gains.
As we look out over the short-term, results are still very bullish for up to 7 trading days with the worst average return gaining more than 2%.
The intermediate term results are very volatile. This is likely due to small sample sizes. If we look at the blue line, which has the largest number of samples, we see the possibility of lower lows or consolidation.
The bottom line is that we should be looking for a bounce with some follow-through. Volatility is likely to remain elevated. The intermediate term is blurry but may become more clear over the next several days.
For more reading on this topic, be sure to visit the Quantifiable Edges blog: 2% Gaps Downs and Other Disasters.
In any of those samples did a fucking nuclear power plant melt down, taking out the worlds 3rd largest economy?
Word
Think what it will do for our manufacturing! That was a joke.
I think the market, as always, will generally do what people least expect.
Shed – I don’t understand half of your black box stuff, but THAT is a headline I understand! 🙂
lol…MOOB, still got the master from Gimme Shelter?
I think so. Got some Zep too. Some Who and others. Want em?
ABSOLUTELY!
Shed,
Thx for the info.
No problem. I just model the action and run the test. I have no idea how it will turn out.
If Japan gets worse, who knows? If it moderates, or even gets better by degrees, it looks like things are aligned for a bounce.
This guy calls himself The Woodshedder!
lmao…good times…is that video archived somewhere on iBC? I hope so.
May the waves be with you Wood … 1-2%
A rally to the 1284-1310 region is likely which will be followed by another wave down which will likely find a bottom around either the 1240 or 1222 pivots (+/- 7pts) … then the bull market should resume with Major Wave 3 in a big way aided by The Bernanke and all the exports to a Rebuilding Japan.
It’s sure looking to me like all the stars are finally aligning for an up day tomorrow. I wrote about this in my own blog this evening.
Yo..U were right on Bro with the last Data bounce few days ago..,,,nice job!!!
remember Greed knows know fear…
Soon they will be feeding the auto slaves Momnsanto’s latest ,
chemo-rice cakes ! only..monsanto ,
“new glow in the dark rice cakes with smile faces and panda bear with no fucken fur !! !!
,sick, aaa
potassum iodione fur face!
Wood,
What’s the win%?
I’ll have to look when I get home.
Looks like the small sample size hurt the analysis this time around.
That, or as Fly says, the nuclear meltdown!
Definitely went the other direction.