Consistent Edge or Recent Tendency

The S&P500 posted a wide range bar on the weekly chart, its largest range in seven weeks. I found that when the S&P posted a WR7 (wide range 7) bar and closed at its highest level in seven weeks, the market’s performance over the next month was sub-par with a tendency towards lower prices. The table below lists each of the last 30 instances in which the weekly S&P500’s range was the largest in seven weeks and the S&P closed at a seven-week high…

Weekly SPX Largest Range in Seven Weeks & Seven-Week High
04/23/10… S&P500 ??? four weeks later
02/02/07… S&P500 -4.2% four weeks later
04/21/06… S&P500 -3.4% four weeks later
01/06/06… S&P500 -1.7% four weeks later
11/05/04… S&P500 +2.1% four weeks later
01/16/04… S&P500 +0.5% four weeks later
09/19/03… S&P500 +0.3% four weeks later
06/06/03… S&P500 -0.2% four weeks later
05/30/03… S&P500 +1.3% four weeks later
03/21/03… S&P500 -0.3% four weeks later
03/17/00… S&P500 -7.4% four weeks later
07/02/99… S&P500 -4.5% four weeks later
04/23/99… S&P500 -2.0% four weeks later
01/08/99… S&P500 -2.8% four weeks later
04/03/98… S&P500 -0.2% four weeks later
07/25/97… S&P500 -1.6% four weeks later
07/03/97… S&P500 +3.3%  four weeks later
05/02/97… S&P500 +4.3%  four weeks later
02/14/97… S&P500 -1.9% four weeks later
11/08/96… S&P500 +1.2% four weeks later
02/09/96… S&P500 -3.5% four weeks later
10/13/95… S&P500 +1.4% four weeks later
09/29/95… S&P500 -0.8% four weeks later
09/15/95… S&P500 +0.2% four weeks later
06/02/95… S&P500 +2.3% four weeks later
02/03/95… S&P500 +1.4% four weeks later
08/26/94… S&P500 -3.0% four weeks later
01/28/94… S&P500 -2.6% four weeks later
10/15/93… S&P500 -0.9% four weeks later
08/27/93… S&P500 -0.6% four weeks later
12/18/92… S&P500 -0.9% four weeks later

In 19 out of the last 30 occurrences, or 63% of the time, the S&P500 was trading at a lower level four weeks later, significantly above the 40% random chance for a lower S&P four weeks later in the same time frame.

Taking the length of that study and doubling the time frame, I next pulled up an equity curve for this pattern since 1970 expecting a steady downtrend. However, note from the chart that the downward bias has only existed on a consistent basis since 1990. Prior to that point performance was much more mixed, calling into question whether the recent pattern of weakness is a consistent edge or merely a temporary phenomenon. For a good example of a consistent edge, see the equity curve for the ‘S&P Up Nine Out of Past Ten Session’ intermediate-term signal recently discussed in this April 16th column.

Categories : Archived EOD Commentary, End-of-Day Commentary

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