For the last two days, SPY has traded above the 200 day moving average and then reversed to close beneath it. Is this rejection by the bear market demarcation a bullish or bearish development?
I wouldn’t know personally, but I’ve heard that rejection sucks. If this is true, SPY bulls must be feeling down in the dumps about now. Why? Because over the last two days, SPY has traded above the 200 day simple moving average but has been unable to close above it. This would seem to be a bearish development. Let’s test it and find out.
The Rules:
Buy SPY at the Close if:
- Yesterday SPY traded above the MA200 but closed beneath it AND today SPY traded above the MA200 but closed beneath it.
Note that on the graph below this will be referred to as “Setup.” “Setup” does not care what happened 3 days ago, so 3 days ago SPY could have been trading above or below the MA200. I added an additional rule to be sure SPY had moved from beneath the MA200 and then was rejected by it. These rules are as follows:
Buy SPY at the Close if:
- 2 Days ago SPY did not trade above the MA200
- Yesterday SPY traded above the MA200 but closed beneath it AND today SPY traded above the MA200 but closed beneath it.
On the graph, this more refined version of “Setup” is labeled “Only 2 Days Above.”
All SPY history was used. No commissions or slippage included.
The Results:
Bottom Line:
There were just enough samples of “Setup” to be generalizable, but only 9 samples of “Only 2 Days Above.”
My interpretation is that on average, when SPY is hovering near the 200 day moving average, it is bullish (reference “Setup” results).
However, when SPY moves up from beneath the MA200 and is then rejected by it twice (reference “Only 2 Days Above”), SPY has tended to consolidate near the average for approximately 3 weeks, and then begins to climb.
It looks to me like SPY is not much affected by rejection. The index has tended to regroup and has then kept on truckin’.
good stuff man. you always have a very unique way of looking at things that goes beyond what you read in books but tested with reality. love it
Thanks Kunal. These ideas of rejection around a major moving average carry a lot of psychological weight. At least in this instance, there doesn’t seem to be any grand meaning to it. The most I could say is perhaps that the MA200 rejection slows down the SPY, but doesn’t stop it.
Thanks Woodshedder for posting this as I was interested and found later for you to test it. Kind of supports the theory of the more times it tests the area the more likely it is to break through (ie. support/resistance getting tested multiple times). Thats the rational thought anyway and the current market is anything but that.
typ to 0
huh?
There’s always tomorrow!
I mentioned last Friday/this Monday that there would be sideways movement this week until most likely Friday this week. I can’t remember the last time I’ve predicted the market out so well more than two days out.
If you’re getting bearish I suggest you wait until Friday to decide, or you wait for the sideways action to break up (or down) at the end of this week/sometime next week.
I’m not bearish.
Wood, You’re on a roll… Thanks.
Thanks Yogi! This is a study I’ve been meaning to do for years.
Great work. I have struggled with this one for a long time. One suggestion, given the small samples would standard error bars on the chart or t -scores verify if the findings are not random?
Ranger, email me woodshedder73 at the gmail, if you don’t mind.
Juice, I deleted your comment. In a previous comment, you compared the global warming debate to a debate about the existence of God. In fact, that is what this is for you, a religious experience. Unfortunately for your argument, global warming can be quantified while the existence of God cannot. Therefore, any debate with you is a waste of time. Anytime you want to debate the merits of the research, I’m game. Until then, I’m not going to waste my time proving to you that God exists (or doesn’t).
global warming is religious experience for me? sure wood .. whatever
why would I debate the merits of your cherry picked research, when I could toss the other sides research at you & you’d find some article denying that research & so on & so forth
it is indeed a waste of time as you have picked sides on the global warming/climate change issue based on preconceived religious-like bias, not unbiased research, unbiased facts or personal logic-based observation/experience
we will indeed go on this way for ever … you on your side, me on mine .. I will never bring you over to my side & like-wise
I think we can at least agree that the whole AGW debate is contentious enought that it doesn’t justify beggaring western civilization in a low-odds attempt to “remediate” whatever it is we’re allegedly doing.
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agreud
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12/15, Key Reversal..took out prior 5 day highs&lows..Only happened 3 other times ! traded lower for several days then broke to new highs !…Aug 2007…small sample size ! http://www.dailyfx.com/forex/video/technical_analysis/2011/12/08/Risk_Plummets_but_Breakdown_Far_from_Certain.html
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