Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Outside Days

By

PrintPRINT

The SP formed an outside day with a lower close yesterday by making a higher high and lower low. Doesn't this forecast lower prices? Not really. Although an outside bar can lead to further downside, the pattern has a tendency to trap shorts and generate a short-term rally. In the very near term, we can cite Monday's action as an example. Recall the SP posted an outside day with lower close on Friday as well. Then on Monday the SP closed up .5%. Since we've had two outside days with lower closes over the last three days, here's a few analogs:

  • The SP futures open above prior day's high and close below prior day's low: Since the inception of the futes, there were 72 occurrences. The results are too mixed to draw any conclusion but we can at least dispel the myth that outside bars are a good sell signal. The next day closed higher 56% of the time and the SP was higher 3 days later 60% of the time.

  • The SP recorded an outside day with lower close in two of the last three days. I limited this query to patterns that mirrored the last three daily bars (see highlight below). There were only ten occurrences but the forward results were consistently bullish. The SP futures were higher three days later in all but one and the lone exception was down just -.14% (table is in %).

From this we can safely say that sales should not be made based solely on an outside day pattern (it's just one piece of a larger puzzle). And given the upside bias associated with tomorrow's action, there's a good chance that Snapper will show up after a downside probe (note the average next day low from table above is -.48%). Upside bias for tomorrow? The Thursday before the March expiration has been quite strong. The SP futures finished the day in positive territory 18 of the last 22 years with the worst decline just -.58%.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE