An important heads-up for today’s action
What happens when
intermediate-term new lows greatly exceed new highs?
On Thursday we saw 431 new twenty-day highs
against 1985 new twenty-day lows. Since March, 2003 (N = 623), when the number
of twenty-day new lows has exceeded new highs by 1000 or more (N = 45), the
average price change three days later has been .55% (29 up, 16 down). This
compares to an average three day price change for the entire sample of .19% (371
up, 252 down). This is one more example of the dynamic mentioned by Larry
Connors and Conor Sen in their book
How
Markets Really Work.
As difficult as it is, buying weakness
outperforms buying strength. Of course, in the current situation, much will
depend upon the course of the hurricane this weekend. As of this writing, energy
markets are not spiking to new highs, suggesting that smart money may be betting
on something less than Armageddon.
Brett N. Steenbarger, Ph.D. is Associate Clinical Professor
of Psychiatry and Behavioral Sciences at SUNY Upstate Medical University in
Syracuse, NY and author of The Psychology of Trading (Wiley, 2003). As Director
of Trader Development for Kingstree Trading, LLC in Chicago, he has mentored
numerous professional traders and coordinated a training program for traders. An
active trader of the stock indexes, Brett utilizes statistically-based pattern
recognition for intraday trading. Brett does not offer commercial services to
traders, but maintains an archive of articles and a trading blog at
www.brettsteenbarger.com.