Thinking The Bulls Will Continue To Run In Near Term? History Says Think Again

We’ve gotten quite a bit of market moving economic data this week. This is on top of the never-ending stream of new out of Europe that always seems to attract traders’ attention. But I also wanted to point out that based on some seasonality research I’ve recently come across, there seems to be a fair probability of further weakness in the next few days.

One item of note (this from SentimenTrader) regarding historical tendencies after the New Year starts with 2 consecutive positive trading sessions:

• The next 2 weeks were positive only 42% of the time.
  
• Since 1981 (30 years), there were 9 occurrences with only 1 of the 9 subsequent 2-week periods ending with a gain.
  
• Upside over the next 2 weeks was definitely limited with SentimenTrader reporting that the average gain was only 1.0% while the downside averaged -3.5%.
  
• Since 1981, only 1 instance out of the 9 was able to show a gain at any time during the 2-week period of more than 1.7% (1987).
  
• From the same view, all but 2 of the 9 (7 of 9 or 78%) registered a loss during the time frame in question of more than -1.4%.

So based upon this one metric (always a dangerous proposition I might add) over the past 30 years there seems to be a nearly 90% probability that the market will be lower two weeks from now.

Additionally, only on one occasion (out of the 9, 11%) did the market at any time move more than 1.7% against a bearish trader.

I'll be watching the market action to see if we fail to rally on the expected "good" news from this morning’s jobs report. If we do fail to move higher on good news, then the above analysis (among other things I’m watching) would begin to carry more weight, at least in my opinion.

Have a good one
Curtis Bergquist
PRO Trader Manager

P.S. The The PRO Trader Service was up in 2011 and has beaten the market handily for five months running now.

 

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