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Consolidation Day?



The dynamics of the rally off the March 24 low and the action from Friday's Unemployment report suggest a lower close for the day. I've summarized the query and next day's results in the bullet points below (referenced to chart):

1. The first query looked at SP performance on the day after Unemployment when the SP futures traded only positive prices for two consecutive days (on Thursday and Friday the SP opens higher and never trades lower). There were just four occurrences and the next day's close was lower in all four. The most recent occurrence was June 5, 2000.

2. The second query attempts to capture the dynamics of the recent rally. The SP futures have posted seven consecutive higher highs and lows on the daily chart. I then stipulated that the seventh day gaps higher and never trades lower. Under these conditions, there were just three occurrences and the next day's close was lower in two of the three. The most recent occurrence was September 23, 1997.

After posting historical patterns, I'm often asked "what happens over the next several days?" In these examples, there was little correlation going forward. I'm simply trying to highlight that the historical bias for today's close is lower. The bears will likely cling to the outside reversal day in the banking index as a reason for pause. As the chart below illustrates, the BKX reacted negatively to the move in interest rates on Friday. Here's one final query for you to digest. The last time that the BKX posted an outside day (higher high and lower low) with close below the prior days low AND the SP futures closed higher on the day was July 31, 2003. Over the next three days, the SP futures declined 1.5%.

As always Minyans, past performance does not indicate future results. Remember that historical patterns should not dictate your trades but can provide a valuable roadmap. Good Luck!

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