Joined Nov 11, 2007
1,458 Blog Posts

It Took 46 Days to Get the Pullback. Now What?

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?

The Rules:

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.

The Results:

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%.

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  1. razorsedge

    u.s. gov to sell aig shares. does this make the gov a pump and dump, or mafia boss (u guys r gonna buy 1/2 dis shit back)

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    • drummerboy

      aig supposed,(gun to their head) buy back half. according to gubmnt.

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  2. Scott Bleier

    April 15th, my good man…

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  3. Keith Shepard

    Markets: The broad trend is intact above the 200 day moving average (EMA or SMA).

    The 200 day Simple Moving Average (SMA) is flat to positive. The 200 day Exponential Moving Average (EMA) is trending upward. The broader trend remains positive at this point. Any change in direction of those two moving averages, then I’ll stand aside in the long term accounts and reevaluate market conditions.

    Pullback and corrections in a bull market (or bear market) are normal and should be viewed as potential swing opportunities in the direction of the major trend (bull in this case).

    Never short pullbacks in the context of a broader trend unless you’re a day trader. 95% of all traders and investors should never short anyway and would be better served by standing aside during corrections.

    Macro: Greece is a wild card, but every time the market thinks they are going into a chaotic default, a new safety net appears. Hard to bet against the ECB’s printing press.

    The U.S. Fed will not let the markets slip too far in an election year. They’ll backstop any major slide. Hard to bet against the Fed’s printing press.

    Just my 2 cents.

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  4. Keith Shepard

    Greek government official: participation in debt swap above 75% as of Wednesday night – @AP

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  5. Daniel

    As always, interesting and well-constructed nominals, Wood. Food for thought, and here is some fodder from it.

    Since we live in Actua, and not Potentia or Nominus, it’s always potentially fruitful to lay out a scenario that includes the actual reports, calendar dates and ‘event risks’ of the next week or two, in conjunction with one of your composite (and hence broadly averaged) studies.

    I’ve added a comment or two of this nature in the past, to several of your prior setup-studies, and you’ve found them useful, so I’m projecting again on this one.

    I use classic systems like ‘Month-end Seasonality’ and OpEx and prior week ‘Buy and Sell Programs’; and I try to apply consciousness and psychological studies and nuances to fine tune them. Because most option-related programs take the form of the Big Fish beating their fins until the market goes DOWN somewhere in the latter portion of the pre-expiration week… and then run it up until the latter part of OpEx week… I always devote a small part of my capital to the ‘Wierd Wolly-Wednesday’ strategy.

    Named after its inventor, Don Wolanchuk, it simply directs one to try to discern the LOD for the Wednesday of the week before options expiration, go long the market thereabouts, and sell on the Thursday of expiration week. It’s strictly a calendar based method, and much has been written about it on the Internet. You yourself have probably written “10 inches of book” on it as they say in Jamaica, what do I know. I don’t even know if it was the strategy that was thought wierd, or Mr. Wolanchuk, but that’s its name, I didn’t coin it.

    Looking at your graphic, without reading too much into its specific ups and downs, what clearly emerges is that on average, about the 7th day after the sharp, sudden, much-delayed selloff, there’s a serious retest of those lows.

    Since this is not happening in a vacuum, that nominal retest-point projects ahead to come at what is already usually a fairly-opportune time to take long positions, toward the mid and late stages of pre-Opex week. Meaning that indeed THIS actual time might closely follow the generalized nominal timeline.

    However, I’ve also studied the psychological effects of periods where the turn of the month begins on a Monday, versus when it begins mid-week, and other nuances, as mentioned above. In the former case, the Friday is the 5th day of the month, as well as the Jobs Friday. Seasonal month-end effects ‘bloom’ more slowly and (imo) more fully. In the latter case, the Monthly Jobs Report is in our faces fast– it kind of truncates the monthly Seasonal effect, and replaces it with the Jobs Number prognostications gaming.

    This March we have 5 Fridays. This is like having an extra head. Most traders have four. One for each week ending in a Friday. Watch what I’m saying here, Wood, how it plays out over the next 5–8 days. People are already getting disoriented. It already feels like OpEx week is next week–it’s gonna be the 3rd Friday. The third head of the Trader is starting to rotate and click into place. I’ve heard two traders already verbally make that mistake just earlier today.

    I think that this odd calendar distortion–and the general feeling of sideways market action, and pausing in the established uptrend, which has been going on the past couple weeks–could make for a “perceptually longer” Mid-Zone to the month over the next 7-10 days.

    And, as your own much appreciated Monthly Seasonality maps show, there’s already a tendency for most months to have a performance ‘sag’ in the middle days. So again, this actual specific set of coming circumstances dovetails nicely with the clear pattern traced by your study. I positioned accordingly today.

    Thanks for your great studies!

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  6. Daniel


    And I was one of those who got confused by a fifth Friday. I don’t deal in options, and thought mistakenly the OpEx friday was the penultimate of the month (and hence usually the third). In fact OpEx Friday is always the third of the month, and I’m sorry if anyone reading was mislead. Still, the basic notion of a long mid-month period this March remains, it will stretch the post OpEx week and pre EOM Seasonal strength period in March 2012.

    Clearly, looking at the recent price action, versus the Model above, the pattern much more closely resembles the ANYTIME linear upward move, rather than the revisit LOW scenario of the setup Nominals.

    What does this imply? Perhaps extraordinary strength, and the beginning of a new strong upleg, rather than fin de siecle topping action and blowoff action.

    This is similar to a conclusion drawn by your colleague chessNwine.

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