As Yogi didn’t say, “It’s hard to make predictions, especially about the future.” (Markus Ronner, 1918)
The S&P 500 was up 1.7% today.
My best predictions are in hindsight. It should have been easy to see the potential for a big up-day today since we hit the previous low yesterday, didn’t go lower, and the volume was a little low. A lot of people decided yesterday was a successful test of the prior low (1306) and the mini-correction is over. We also had better than expected jobs data; who would bet on any more downside risk?
Well, me for one. Those who have followed this site for a while know that I have done a lot of statistical analysis regarding big moves in the S&P, up or down. Huge up or down days that exceed our statistical limits (and today’s move did) often set the upper or lower boundary for the trend.
In plain English, the big move up today is bearish for the market in the short term. (There’s that pesky prediction thing again.)
A graph of the strength of only the huge up-days shows a declining, downward-sloping line. That’s because the extreme upside moves have been getting smaller since 7 July 2010. (Remember 2 July was the bottom last summer.) Today’s big up-move did nothing to change the trend.
That had not been a problem for the market because the down-side moves had also been getting smaller. Well, that pattern changed on 28 January 2011 when the downside moves started getting bigger. As down-moves get bigger, they tend to pull the market down. Unless this trend changes soon, we’ll see the correction continue – so at this point it still looks like the trend is still down.
The Navigate the Stock Market analysis still has a SELL rating on the S&P.
