Wednesday, January 27, 2010

Inside Day followed by Outside Day




What's peculiar about last few days is steep drop followed by an inside day then an outside day in a midst of longer term rally. I did a simple test to see what would happen in days after such condition by specify the following condition:
  1. Inside day followed by outside day.
  2. Price is lower than five days ago.
  3. Higher than 200 day simple moving average.
There have been 19 such instances since 2002. The result is overwhelmingly bearish in the next day but three and more days out, market becomes quiet positive. It would be interesting to see how this pattern plays out with the positive bias going into the FED day.

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