Sunday, January 2, 2011

Looking Forward With Yesterday's Action

Interesting article in this month's Technical Analysis of Stocks & Commodities. The author, Anthony Trongone, examined the next three days of price action in the S&P 500 SPDRs after upmoves and downmoves. While the author only used a short period of time in his analysis it was still very interesting. What many people might think is that after an upmove of 2% or more in the S&P 500 the market is in rally mode and is likely to rally over the next three days. After a down move of 2% or more, people might assume the market is in a decline and would go down the next three days. The analysis showed the opposite, on average the S&P 500 made money the next three days after a large decline and lost money the next three days after a large up move.

This goes along with a lot of our thinking on using counter trend analysis to profit from overbought and oversold conditions in the stock markets.

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