Price pattern in stocks suggests continued sell off probable today - then sharp rebound 5-12-22

 This is a quick update to say that after looking at past price patterns in the context of markets making 52 week lows,  that with today's gap down I would estimate a higher chance of a continued sell off into the close.

But buying at the close today has a very profitable (volatile) short term set-up for a price rebound in stocks.

The idea would be to buy at today close and then sell at the first profitable close (or the following open).

Probable Continued Sell Off in Stocks 5-5-22

Click on Table to Enlarge

It is very rare to have any combination of underlying price factors which produce an extreme negative skew in forward returns in my experience.

But based upon today's market action I looked .....

Criteria:

• Yesterday SPY was up >2.5%
• Today is down more than 3%
• Price is below 200 day moving average

This basically shows a big flip flop in price in the context of a down trend.  

There are not many instances, but the past instances show a high probability of a continued decline with a 4:1 maximum loss compared to gain over the next 5 days.

There was also a high probability of 2 or more closes down in a row over the next 5 days.

9 out of the 11 instances showed maximum losses of over 4.9% or greater over the next 5 days.  

This scan was not adjusted for volatility.  So understand that there could a large increase in volatility over the next few days.