Joined Nov 11, 2007
1,458 Blog Posts

$SPY Gains More Than 4% in 2 Days. Bullish or Bearish?

I’ve said over and over how hard it is to find a setup on the indices that produces a bearish result over an intermediate term. Almost all setups confirm that the market likes to go up more than go down. Imagine my surprise to find that the past couple of days have made a truly bearish setup.

The Rules:

  • Buy $SPY at the close when it gains more than 4% in 2 days.
  • Sell $SPY at the close X days later.
  • No commissions or slippage included.
  • All $SPY history used.

The Results:

Some Additional Stats:

Next Day Winning Percentage: 47.62%
5 Day Winning Percentage: 60.00%
Number of Setups: 63
Number of Trades Held 50 Days: 22

It looks like another spike higher is to be expected over the next week. But if history is our guide, any move higher should be sold. $SPY has fallen, on average, greater than 2% over the next 3 weeks.

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  1. Bozo on a bus

    Having seem many of your charts with the returns basically going up regardless of the conditions, this is indeed pretty unusual. However, we have also seen changes in how overbought/oversold markets react over the past few years. Are the results the same for before vs after 2008?

    I suspect the past two days were also “90-90 up days”, which many believe is bullish intermediate term. Any thoughts on the implications past the 50 days shown in the chart?

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    • Woodshedder

      Bozo, the setups seemed fairly evenly spread out over the last 5 years, although I did not explore that part in depth.

      I believe that beyond 50 days, this is bullish, but that is guess.

      However, we have $SPY making somewhere around a new 50 day high, and that is absolutely bullish. Also, $SPY closed 3 pennies beneath its upper Bollinger Band (50,2). Closing above the upper ban is also bullish.

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