Thursday, May 18, 2017

1.5% Decline in SPY the Day After a 52 Week High - Bearish Implications for Coming Weeks

Click on Table to Enlarge

The above table shows instances in the history of SPY going back to 1995 where a 52 week high was followed the next day by a loss of greater than 1.5%, which is what we saw yesterday in SPY.  This filter also look for only times where there was MACD bearish divergence on the weekly chart at the 52 week high.

From the closing value of the day of the 52 week high, every single instance lost at least 4.8% over the next month of trading. 

Even taking out the filter of the bearish divergence on the weekly chart, the results were that 11 out of 12 previous instances declined at least 4.8% over the next month.

So this adds further weight to the outlook I posted earlier today based on the more subjective qualitative price pattern and a general view of conditions.

So given this back test, it is putting us on alert that stocks are likely to fall a few more percent in coming weeks.  And a few of the past instances led to sizable corrections of 10-20%

About half the past instances showed an approximate 1 week rally to back near the highs after the first 1-3 days of decline, before then selling off strongly again.

The other half of instances basically had no substantial bounce after the initial big down day.

If there are questions about how to make a trade with stops and limits here, comment.  But the idea is that after a little further decline over the next 1-2 days, stocks rebound for a few days, and that may be an ideal time to use an inverse ETF to try to capitalize on probable further sell off.


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