The S&P 500 has rallied more than 12% in 24 trading sessions. This isn't a terribly rare occurrence. Writing up a quick indicator shows me that there have been 18 observances of rallies traveling more than 10% in any rolling 24 day period. Restricting the filter to 12.5% still provides us with 9 observances while bumping it to 15% drops the return to 5 examples. The last 10% rally was in January of 2012 and the last 15% rally was in November of 2011. These last two observances were clearly during the churning process as the market had not made new all-time highs, yet.
The 18 total examples gained an average of .92% in the S&P500 futures one month later. The largest gain was 6% while the largest loss was 10%. Finally, the market ended up higher one month later exactly half of the time.
Meanwhile, running a similar rolling calculation across weekly data we have 15 observations of markets that have rallied by 10%, 12.5% and 15% from close to close in four weeks. Four of these examples moved 12.5% in four weeks. Finally, just two examples of the S&P500 futures rallied more than 15% in four weeks. The last two examples were both part of the spring and summer rallies of 2009.
The weekly statistics bore similar if, slightly more consistent returns, pushing the market .6% higher four weeks down the line two thirds of the time. The largest four week gain was 9.9% as the market rebounded in April of 2009 while the largest loss was 10.6% in September of 2002.
Frankly, if the prices were adjusted for inflation, the results would be completely inconsequential.
Further adding to the quantifiably confounding nature of the current situation is volume. Volume spikes precede both the daily and monthly rallies about half of the time. This makes sense since the preceding spike in volume is usually accompanied by a downdraft in the market. If half of the observations are negative to begin with, the volume surges preceding them looks like normal chart action.
Finally, the commercial traders who we track religiously, provide us with no help in either predicting the moves or, as a clue towards future direction. Their position only changed significantly in about half of the cases. The only real consistency was also not a surprise; Commercial traders buy the hell out of the deepest corrections. We use this exact approach in two of our stock index trading programs.
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Perhaps the best kernel of research I've read in the past week is from Tony Sagami. He stated in Mauldin Economics that the S&P 500 has closed above its five-day moving for 20 consecutive closes. This has happened just three times in the last two decades. He goes on to state that in each case, of which there are only three observances that, "the winning streak ended within four weeks." He doesn't state by how much, simply that the odds favor the short side in an over stretched rally.
