The S&P 500 has closed lower 5 out of the last 6 days and is now resting just above its lower Bollinger Band (50,2). I’m a tad concerned that we could see the S&P start a slide down the lower Bollinger Band. Still, even with the above conditions and the S&P making a new 43 day closing low, the intermediate term is still looking bullish. It is truly rare to find a set of conditions that are bearish when looking 50 days ahead.
The Rules:
Buy SPY at the close if
- It will make a new 43 day low
Sell the trade X days later, at the close.
No commissions or slippage included. All SPY history used.
Results:
This setup has occurred 170 times, and if the trade was held for the full 50 days, there were 45 samples used to make the average represented in the graph above.
We can see increased volatility in the graph, but other than that, everything appears just about normal as the market trends upward at a slightly increased pace following a new 43 day low.
What is somewhat abnormal is closing so close to the lower Bollinger Band. As noted above, caution is in order. However, the intermediate term outlook is that on average, the market recovers from these pullbacks and nothing abnormal occurs.
Good lord, the buy and hold reasoning, in analytical glory.
Treu. It is damn hard to be bearish. And when the the worm turns and the results show up in the graphs, it is already too late to do anything about it, and most of the time, it is time to get long again.