Click on Table to Enlarge
Both yesterday and today were days with back to back 1% gap up openings.
That simple criteria in and of itself has historically led to a mild negative skew to future returns.
However, I have looked at differences on the second day....
- does the gap fill or no?
- is there any substantial sell-off after the open?
- does it close higher than the open?
- does it close near the top of the range?
And in the current market environment the last 2 days both did NOT lose more than 0.5% from the open.
And when adding that one simple criteria, we are left with the table above. It has a huge negative skew over the coming 2-4 weeks.
It is rare to ever find any combination of factors that produce a negative skew like this.
So, while today had a monster follow through (in some sectors) to yesterday, I would say the odds strongly favor some significant give back of the recent gains.
Today also had some odd underlying internal data in that LESS than half of the volume on NYSE was in up issues and advancing issues barely outnumbered decliners.
So maybe today wasn't as massively bullish as it would seem. The value line geometric index (unweighted average stock price) was actually slightly DOWN today.
There may be a few trading strategies that make sense here, but a bear call credit spread or a bear put debit spread would make sense to me with expirations 2 weeks out from now.
