looks like one has taken hold, and if you have been reading Marketwatch.com you
are likely to believe this is 1987 again.Yes, the S&P 500 closed solidly below the 50-day moving average. Yes, last Friday's volume was well above average (did I mention that last Friday was an option expiration day, and that may have been responsible for some of the volume). Tuesday's 20.7 point drop in the S&P 500 certainly looks bad, but the
index closed down only 3.6% below the highest close of 2012, in early September.An obvious question is what is the S&P's track record, as far as the typical
drop in percentage and time? I just happen to have that information handy.
Since 1981:Short-term trends in SP-500 Daily chart
Avg # of days in up-moves: 14.1
Avg net G/L in up-moves: 5.0%
Avg # of days in down-moves: 13.2
Avg net G/L in down-moves: -3.8%
I'll tell you a secret of the market. The average cycle of most indexes and
stocks is 28 days (what a coincidence, that is about the same as the lunar
orbit). It may vary quite a bit between individual cycles, and you can argue
about specific pivot days, but overall, when you get a few hundred samples
together, the intermediate up-trends average out to 14 days or so and the
average down-trends average out to about 13-14 days.
The NASDAQ Composite? As you might expect the moves are greater, but the
periods average out to the same:
Short-term trends in COMPQX Daily chart
Avg # of days in up-moves: 14.1
Avg net G/L in up-moves: 7.1%
Avg # of days in down-moves: 14.2
Avg net G/L in down-moves: -5.3%
How about a sedate stock like Proctor & Gamble?
Short-term trends in PG Daily chart
Avg # of days in up-moves: 13.5
Avg net G/L in up-moves: 6.6%
Avg # of days in down-moves: 13.3
Avg net G/L in down-moves: -5.0%
How about an active tech stock like Oracle?
Short-term trends in ORCL Daily chart
Avg # of days in up-moves: 13.4
Avg net G/L in up-moves: 11.8%
Avg # of days in down-moves: 13.4
Avg net G/L in down-moves: -8.7%
If you pick the center of the recent topping-out of the S&P 500, how many days
has the S&P been falling?
Notice in my Short-term trends in SP-500 Daily chart table above that the
average down-move is 13.2 days.
Can the market be starting an extended fall, one of those low-probability high
standard deviation ‘fat-tail' collapses? Sure, and I've been somewhat expecting
one. Looking at some recent big-name stock drops, like yesterday's 9% drop in
duPont and Apple's 13% drop since mid-September, it is easy to believe that.
But a funny thing happened on the way to the forum. As I went through a few
hundred big-name stock charts, I noticed most of them are holding up well. If
they dropped in the past few days, it was on below-average volume. There are
several sectors where groups of stocks are holding up well. A few days ago I
mentioned a few housing stocks. Well, DHI, LEN, and PHM are still looking good
– no above-average down-close days to overwhelm the recent above-average
up-close days. The three drug stocks I mentioned, BMY, LLY, and MRK, have
pulled back, but only to recent support levels, if that.
So far, I would term this recent drop as only a typical minor pullback. We'll
have to wait and see whether it turns around soon or instead gains
determination to scare people out of the whole concept of investing in stocks.
Of course, there are always good setups and trade possibilities, even in environments like this. To find out more, click here: www.markettamer.com/seasonal-forecaster
By Gregg Harris, MarketTamer Chief Technical Strategist
Copyright (C) 2013 Stock & Options Training LLC
Unless indicated otherwise, at the time of this writing, the author has no positions in any of the above-mentioned securities.
Gregg Harris is the Chief Technical Strategist at MarketTamer.com with extensive experience in the financial sector.
Gregg started out as an Engineer and brings a rigorous thinking to his financial research. Gregg's passion for finance resulted in the creation of a real-time quote system and his work has been featured nationally in publications, such as the Investment Guide magazine.
As an avid researcher, Gregg concentrates on leveraging what institutional and big money players are doing to move the market and create seasonal trend patterns. Using custom research tools, Gregg identifies stocks that are optimal for stock and options traders to exploit these trends and find the tailwinds that can propel stocks to levels that are hidden to the average trader.
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