What the PowerRatings Are Telling me About the Markets!
Yesterday the Nasdaq, Dow, and the
Russell 2000 closed up for the seventh consecutive day (the S&P 500
has closed positive for 6 out of 7 days). Although this is good news if you have
been long this market; this is concerning for the short term (next 5 days). Over
the past 15 years, three or more consecutive down days in the indices has
significantly outperformed 3 or more consecutive up days when looking at the
following week. The more exaggerated this is (meaning more consecutive days in a
row up or down respectively), the more powerful this data is.
Furthermore, all of the markets are at significant long term
highs. And, yes, I do believe this bodes well for the markets for the
longer/intermediate term (meaning the monthly time frame), past data tells us
that multi-day highs significantly underperform the average performance of the
indices. For instance, the average one week return after the S&P 500 makes a 1
month high is 0.01%. The average 1 week return of the S&P 500 overall is 0.21%.
That means that when the market is not at 1 month highs, it’s average return
(over roughly the past 15 years) is 0.21%; therefore by buying now–I am at a
0.20% (0.21- 0.01) disadvantage. For the Nasdaq that disadvantage is 0.17%.
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