In this recent post, I noted it had been 40 days without a pullback greater than 1%. 6 days after the post, SPY saw a one-day fall of -1.5%. If we bought at the close of the pullback day, what would results look like going forward?
Buy SPY at the close if
- it has been more than 40 days since a one-day fall of more than -0.99%
- and it falls more than -0.99%
No commission or slippage included. All SPY history used.
Thoughts and Caveats:
For the purposes of comparing results, the red line shows the average SPY performance of buying it at the close after any one-day pullback greater than -1%.
Results are still solidly bullish.
There were only 13 occurrences of this setup. The next most recent one was January 28th, 2011. Shortly after that setup, the market underwent almost 11 months of consolidation and volatility.
Bottom line: The market’s ability to go more than 40 days without a pullback greater than 1% shows an incredible amount of momentum. In the past, the momentum did not appear to be suddenly stopped after a one-day pullback greater than 1%.