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Wednesday, March 19, 2008

 

the double 90s


i noted in closing yesterday that the market put in what is by my estimate the second 90% upside day in six sessions. others have picked up on the fact too, notably at quantifiable edges and traders narrative. first the latter:

David Aronson, a professor of finance at Baruch College looked at instances in the market (from 1942 to present) when we have these double 90-90 days. His time frame for the second is much wider than what we just witnessed - 3 months. But the results are intriguing nonetheless.

After the special circumstance of a double 90-90 day, the following 60 (trading) days have historically provided a return of +22% [annualized] instead of a paltry 4.5% annualized otherwise. It is more remarkable when you consider that that return comes with the assumption that you enter the market on the close, after a double 9-to-1 signal was triggered and without adding any dividends!


then the former:

Also of note is the fact that breadth was extremely positive today. Upside volume swamped downside by more than 9:1. Last week we just missed a 90% upside day, posting 89%. While it doesn’t quite fit the criteria, I did a study in November on my old blog looking at 2 90% upside volume days within a 5-day period. Results were extremely bullish, although that instance did not work out well.


the results of that study:

Two 90% up days in a five day period (this also triggered today 11/28/07): 5 past occurrences: 11/29/71, 8/20/82, 8/2/84, 1/5/87, 8/31/07 - buy on close of 2nd 90% day

  • t+10 - 100% profitable, 4.8% avg gain, worst drawdown=2.33% (8/31/07 trade)
  • t+20 - 100% profitable, 7.5% avg gain, worst drawdown=2.33%
  • t+40 - 100% profitable, 10.6% avg gain, worst drawdown=2.33%
  • t+60 - 80% profitable, 10.2% avg gain, worst drawdown = 4.55% (losing trade was 3.1% loss from 8/31/07 to 11/27/07 which now is just a 0.3% loss at day 61)
  • t+90 - 100% profitable (4 trades complete), 15.4% avg gain, worst drawdown = 4.55%


these studies are not related to the big-spike-and-nonconfirm pattern of new lows i set out earlier, but they do indicate the relatively high probability of a three-month-plus rally of sigificant size.

UPDATE: jeff saut caught it too.

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