S&P500 R-Squared Set to Close Above 90%
By
Rennie on Friday, July 24th, 2009 at 2:23 pm
Linear Regression is a statistical tool that utilizes what’s known as the ‘least squares’ method to plot a straight line through price. Similar to a moving average, the linear regression line is often used to better understand the underlying trend. Unlike a moving average, however, Linear Regression does not exhibit as much delay. Since the indicator is fitting a line to the data points rather than averaging them, the Linear Regression line is more responsive to price changes. This chart highlights two important technical indicators based on the linear regression technique – R-Squared and Linear Regression Slope. Slope tells you which direction the linear regression line is pointing (above zero is bullish, below zero is bearish), while R-Squared attempts to quantify the strength of the trend. Specifically, r-squared values show the percentage of movement that can be explained by linear regression. For example, if the r-squared indicator is currently at 70%, it means that 70% of the movement of the S&P500 can be explained by linear regression. The other 30% would be considered random noise.
Today, the 14-day R-Squared figure for the S&P500 is set to close well above 90% for the first time since March, reflecting an unusually strong trend. Historically, an R-Squared reading over 90% along with a positive slope has been a good indication that the S&P is likely to remain on firm footing over the intermediate-term. The last thirty occurrences are noted in the table below, along with the S&P’s performance over the next two weeks…
SPX R-Squared Crosses 90%, Linear Regression Slope Positive
07/24/09… S&P500 ??? two weeks later
03/24/09… S&P500 +1.2% two weeks later
04/25/07… S&P500 +1.2% two weeks later
11/23/05… S&P500 -0.7% two weeks later
11/09/04… S&P500 +1.1% two weeks later
12/29/03… S&P500 +1.1% two weeks later
06/06/03… S&P500 +0.8% two weeks later
03/08/02… S&P500 -1.3% two weeks later
04/23/01… S&P500 +3.2% two weeks later
01/25/01… S&P500 -1.8% two weeks later
12/31/99… S&P500 -0.3% two weeks later
11/18/99… S&P500 +0.6% two weeks later
07/02/98… S&P500 +3.5% two weeks later
03/20/98… S&P500 +2.1% two weeks later
02/27/98… S&P500 +1.8% two weeks later
02/10/98… S&P500 +2.3% two weeks later
06/19/97… S&P500 +2.1% two weeks later
01/20/97… S&P500 +1.3% two weeks later
11/13/96… S&P500 +3.3% two weeks later
09/19/96… S&P500 +1.4% two weeks later
05/21/96… S&P500 +0.8% two weeks later
04/29/96… S&P500 +1.1% two weeks later
01/29/96… S&P500 +6.0% two weeks later
12/08/95… S&P500 -0.9% two weeks later
09/12/95… S&P500 +0.9% two weeks later
07/14/95… S&P500 +0.5% two weeks later
05/04/95… S&P500 -0.2% two weeks later
08/27/93… S&P500 +0.3% two weeks later
03/08/93… S&P500 -1.3% two weeks later
10/29/92… S&P500 +0.5% two weeks later
01/03/92… S&P500 -0.1% two weeks later
The S&P was higher two weeks later in the majority of cases, but more significant is that downside potential was limited to 2% or less in every case. Similar to the indicators discussed last night, this again points to SPX 955-960 as a likely area of intermediate-term support.
S&P500 R-Squared Set to Close Above 90%
By Rennie on Friday, July 24th, 2009 at 2:23 pmLinear Regression is a statistical tool that utilizes what’s known as the ‘least squares’ method to plot a straight line through price. Similar to a moving average, the linear regression line is often used to better understand the underlying trend. Unlike a moving average, however, Linear Regression does not exhibit as much delay. Since the indicator is fitting a line to the data points rather than averaging them, the Linear Regression line is more responsive to price changes. This chart highlights two important technical indicators based on the linear regression technique – R-Squared and Linear Regression Slope. Slope tells you which direction the linear regression line is pointing (above zero is bullish, below zero is bearish), while R-Squared attempts to quantify the strength of the trend. Specifically, r-squared values show the percentage of movement that can be explained by linear regression. For example, if the r-squared indicator is currently at 70%, it means that 70% of the movement of the S&P500 can be explained by linear regression. The other 30% would be considered random noise.
Today, the 14-day R-Squared figure for the S&P500 is set to close well above 90% for the first time since March, reflecting an unusually strong trend. Historically, an R-Squared reading over 90% along with a positive slope has been a good indication that the S&P is likely to remain on firm footing over the intermediate-term. The last thirty occurrences are noted in the table below, along with the S&P’s performance over the next two weeks…
SPX R-Squared Crosses 90%, Linear Regression Slope Positive
07/24/09… S&P500 ??? two weeks later
03/24/09… S&P500 +1.2% two weeks later
04/25/07… S&P500 +1.2% two weeks later
11/23/05… S&P500 -0.7% two weeks later
11/09/04… S&P500 +1.1% two weeks later
12/29/03… S&P500 +1.1% two weeks later
06/06/03… S&P500 +0.8% two weeks later
03/08/02… S&P500 -1.3% two weeks later
04/23/01… S&P500 +3.2% two weeks later
01/25/01… S&P500 -1.8% two weeks later
12/31/99… S&P500 -0.3% two weeks later
11/18/99… S&P500 +0.6% two weeks later
07/02/98… S&P500 +3.5% two weeks later
03/20/98… S&P500 +2.1% two weeks later
02/27/98… S&P500 +1.8% two weeks later
02/10/98… S&P500 +2.3% two weeks later
06/19/97… S&P500 +2.1% two weeks later
01/20/97… S&P500 +1.3% two weeks later
11/13/96… S&P500 +3.3% two weeks later
09/19/96… S&P500 +1.4% two weeks later
05/21/96… S&P500 +0.8% two weeks later
04/29/96… S&P500 +1.1% two weeks later
01/29/96… S&P500 +6.0% two weeks later
12/08/95… S&P500 -0.9% two weeks later
09/12/95… S&P500 +0.9% two weeks later
07/14/95… S&P500 +0.5% two weeks later
05/04/95… S&P500 -0.2% two weeks later
08/27/93… S&P500 +0.3% two weeks later
03/08/93… S&P500 -1.3% two weeks later
10/29/92… S&P500 +0.5% two weeks later
01/03/92… S&P500 -0.1% two weeks later
The S&P was higher two weeks later in the majority of cases, but more significant is that downside potential was limited to 2% or less in every case. Similar to the indicators discussed last night, this again points to SPX 955-960 as a likely area of intermediate-term support.