Do the Last Five Sessions Mean Anything?
Thanks for the stats gents!
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Great to see you both in Ojai. Taking a closer look at the recent action I have a question for you as we've had a very tight range in recent sessions.
When was the last time we had five straight S&P closes within a point and what does that suggest about the near future? The calm before the storm?
When ranges (daily or high/low) become heavily compressed I generally find it difficult to predict direction but it is a better indication that we're about to go somewhere.
In fact, the recent 5-day range is EXTREMELY unusual as it's the tightest 5-day closing range (in %) since 1996. Attached is a quick summary of similar occurrences looking back to 1980.
As usual, I looked at it the same way as Mr. Roney - I went back to 1950 and narrowed it down to those times the S&P was trading above its rising 50-day average. The table below shows the results for the given number of days later.
Basically, the results were about in line (or a little worse) than random. The best results came when this pattern occurred below the 50-day average, as the 5-day return was positive more than 80% of the time, but the 20-day return was positive less than 40% of the time.
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