Whenever we have a string of up or down days in the market, there are always questions about what happens next…Let’s take a look at what has happened in the short and intermediate terms after 4 consecutive up days during a bear market.
The Rules:
Buy SPY at the close If:
- It has had four consecutive days of higher closes
- The 50 day moving average is beneath the 200 day moving average
- The close is beneath both the 50 and 200 day moving averages
No commissions or slippage included. All SPY history used.
The Results:
There were 18 occurrences of this setup and 121 of the bull market setup.
After this setup, the market tends to pull back quickly over the next couple of days, with the average pullback nearing -2%. After the pullback, the market has tended to consolidate for a couple of weeks.
As we look out more than 10 days or so, the rest of the performance is due primarily to the moving average setup, which is commonly known as a Death Cross.
As a contrast, I ran the same 4 consecutive higher closes setup except I required a Golden Cross, which is to have the 50 day moving average above the 200 day moving average and the close above both moving averages. This is represented by the red line.
The volatile blue line against the stable red line shows just how volatile bear markets are compared to bull markets.
We are still expecting a high volatility market that will trade within a range. I still see more downside than upside, especially with the falling 50 day moving average being likely to act as significant resistance.
So, buy TZA or one of the bear ETFs?
Yep, I would start small in case we run all the way to the 50 day before pulling back.
Always enjoy your work. Thanks for the efforts.
Market seems to obey and follow your analysis..great work
Well, I don’t know if it obeys my analysis… 😉
Most people don’t believe it, but market turns are much easier to call in a high volatility market environment.
Great analysis….very clear information when put into that context. Keep up the good work.
I think this work will finally put the crazy XIV (Fo’teen) Longs to bed for good.
Maybe time to look into some serious VIX leaps, though.
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Thanks Wood. The difference in the character of the Bull vs. the bear line should be sufficient warning to the novices among us that this will be a difficult environment to take cash out of this market. I suspect your warning will fall on deaf ears however.
They will jump into $TZA after a day or two of sharp moves down, only to have their face ripped off when the market moves against them.