Posts filed under “Technical Analysis”
On Thursday. we had a huge up day, with US markets gaining ~2%. Some folks credited the possibility of a debt ceiling deal, while others called it a low volume short covering rally. Regardless, it was substantial, and should not be ignored.
As the table above showed, these 90/90% up days– when 90% of stocks on the NYSE are up and 90% of the shares traded are to the upside — the tendency is towards higher future returns in the ensuing weeks and months.
As you can see in the table above, 20, 30 and even 65 days after a 90/90 day, markets are higher at least 70% of the time. Under normal circumstances, that range would be low 60% range. In other words, the odds of gains improves some 10% over normal following a 90/90 day in our time period (20, 30 or 65 days from 2007-present) .
Here’s Merrill’s Stephen Suttmeier:
“That big buying the US equity market opened strong with a 90% up day (at least 90% of stocks on the NYSE up on at least 90% up volume) and the equity market maintained this 90% up day into the close.
This is bullish and was the first 90% up day since the pair of 90% up days from 12/31/12 and 1/2/13. We have data on 90% days going back to January 2006. Since then 90% up days have occurred only 3.3% of the time, but after a 90% up day, the S&P 500 has well above average 10, 20, 30, and 65 day returns and this supports the case for a year-end rally. For example, the 65-day S&P 500 return after a 90% up day is 4.9% vs. an average 65-day return of 1.4%. Interestingly, the 1, 2, and 5-day returns for a 90% up day are below average and negative. This suggests buying into a short-term dip after a 90% up day.”
That 14% edge over 65 days isn’t a sure thing, but it is quite statistically significant . . .
A 90% up day is bullish & the stats support a year-end rally
Merrill Lynch Bank America, October 11 2013
click for ginormous chart Source: Investech We are almost through September and despite its reputation for volatility, the month has seen strong upside and new bull market highs. The S&P500 lost “only” 4.6% in August, but based on the Sturm und Drang you are forgiven for assuming it was 3X that amount. As…Read More
You know I love these sorts of things: Dr. Ed Yardeni has a nice set of monster sentiment charts posted at his site. The link is Stock Market Indicators: Fundamental, Sentiment,. & Technical and its 20 pages of fun. courtesy of Yardeni Research, Inc. September 17, 2013.
Reading through the classic textbook, Technical Analysis of Stock Trends, last night I stumbled upon a stunning stat comparing the returns of a strategy using Dow Theory versus buy and hold. Using Dow Theory buy and sell signals would have turned an initial investment of $100 in 1897 into $492,597.38 by the end of 2010. …Read More
Shiller P/E Bottoms Coincide with Major Lows, Downtrend Breaks Precede Rallies Click for ginormous chart Source: Merrill Lynch Nice chart from Stephen Suttmeier & Co looking at how the Shiller P/E ratio compares to regular P/E at major lows, downtrend breaks, and before rallies: The good news is that secular trading ranges lead to…Read More
Click to enlarge Source: Merrill Lynch/BoA This is an interesting chart: Improving Wall Street sentiment is still no where near the levels associated with excessive sentiment. Despite the ongoing rally — or perhaps because of it — we are now all the back to the levels enjoyed at the lows in March 2009. Merrill notes…Read More
Click to enlarge Source: The Chart Store via All Star Charts We have not looked at the Presidential Cycle in some time (See this, this and this from 2005). Regardless, it is something that people often fail to contextualize correctly: What the chart above shows is the historical average of the 4 year presidential…Read More
click for larger table Source: Merrill Lynch Global Research, Interesting look at bull markets that have gone on without a 20% correction (note this is within the context of a 20%+ cyclical rally). Merrill Lynch’s Global Research team note that 2 prior cyclical bull markets marked a transition from a secular bear market…Read More
Yesterday, I showed Merrill’s most active A/D line, which had broken out to new highs.
One reader took exception with this, suggesting that its a case of bullish confirmation bias. I disagreed for 2 simple reasons:
-Merrill’s “Chart Talk” has been running the most active A/D chart for years;
-Any index or major technical analytical measure making a new high is newsworthy
I appreciate the insidious nature of various biases in our wetware — and I want readers to keep pushing back on anything that remotely looks like bullish or bearish bias in action.
Ironically, the day after that discussion, Merrill’s Technical Analysis group noted the break out in the A/D line of the Nasdaq 100 — itself at 13 year highs.
To paraphrase Stephen Colbert, sometimes Reality just has a bullish bias . . .
Text from Merrill’s wonks after the jump
Category: Technical Analysis