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Boo 5 .... Hoofy 0

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The SPH closed lower for the fifth consecutive day. Yesterday I showed some statistics that suggested a 70% probability of a higher close given the most recent four day pattern. But on Tuesday, the SPH closed lower for the fifth consecutive day. Is the market sending us a message?

Statistics only give us the probability of an event. They don't give us the outcome. But when the market performs against the historical pattern, there's often a message in the madness. To get a better idea of what's happening, let's take a look at the monthly chart of the Dow. That index is just three days away from posting it's 11th consecutive month with a higher low (see chart). This alone is a very rare occurrence. Looking back to 1950, the Dow has put up such a streak just two times: 1950 and 1995.

Just as the rubber band is being stretched with the current DAILY run of 5 consecutive lower closes (especially after a new 100 day high close), the current MONTHLY run is being stretched in the other direction. You can read into this what you want -- but the daily chart is probably telling us that the monthly run is nearing an end. Even when the market goes against the "odds" we have a chance to learn something.

Okay, so what about the five lower closes. Once again, the odds are stacked in favor of the bulls for Wednesday's close. The futures have posted such a streak just 60 times. The next day's close was higher in 75% of them. Most importantly, the index traded positive in all occurrences with an average high of +1%.

Even more infrequent is the run of five lower closes following a 100 day high close (as is the case today). For the SP futures, we've seen this pattern just 12 times with the most recent occurrence in July '99. The next day closed higher in 75% of the 12 results.


No positions in stocks mentioned.

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