It looks like we are going to have a very strong up day today, in an overall weaker market (in a much longer-term uptrend). Here's a study I ran for looking for similar occurrences:
Now you might ask, wait a minute, it looks like today we might close ABOVE the 50 day moving average, why would you include today as a potential opportunity from this test? The main reason is because the filters we have on (below 50, above 200), are just that. We are not assuming that the 50 day and 200 day are magic numbers, we are just assuming that if the market is above the 200 day yet below the 50 day, we are typically in a medium term pullback, in a longterm uptrend (which is the case today). We are just looking for similar occurrences.
In the end it appears that this study is averaging further movement higher in the next month (out of 90 data points, the market has been higher a month out after a day like today 70% of the time). Usually days like this signal a change in overall market sentiment.
If anyone is looking at a specific market pattern and would like me to study it and its average returns, feel free to comment on this blog!
Hope this helps!
Julian
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