A Day of Consolidation

Today (2/1/2010) ends up being another inside day. This is the second inside day within two weeks with the last one being 1/25/2010. Historically when SPY is trade below 50-day moving average but above 200-day moving average, it seems that frequent inside days signals a some sort of bottoming process and high possibility of market retracing the losses within 20 days.

I sound very uncertain because, inside day does not seem to help much on timing the rally.All I can be certain is that imminent farther sever drop does not seem likely under current condition according to historical data.

Another phenomenon I observed is that when the inside day is made on volume lighter than 20-day average, the chance of next day close higher is 60% vs. 33%, and average return of 0.15% vs. -0.07% (n=16 vs. n=15). This could be purely random, but interesting nonetheless. Today's volume happens to less than 20-day average.

So how does this information help intra-day trading? I am more incline to go long at lower extremes rather than fading breakouts, and I will tend to take profit a little bit early when fading breakouts.