Four Up Days Erased by One Negative Day
by Jerome "Mel" Hickerson
Studying the SPX daily chart one thing jumped out to me: Friday's downturn erased four days of positive gains. So the idea came to me to query the Matrix: How often are four consecutive sessions erased by one negative session, and what pattern develops afterward, if any?
The first thing that surprised me is that this has happened only 17 times since 1950. So this is a rarity; in 15,169 sessions since 1950 the SPX has pretty much seen it all and usually many times.
In examining the data, it became apparent to me that it made sense to ignore the 1950s, 60s and 70s; during this time period the SPX often went up 0.01 points a day for a few days then had a negative session that wiped out 0.05 points. It seemed to me that those occurrences bear little relationship to our current market. So this eliminated five occurrences and leaves us with twelve instances to examine since 1980 (including Friday.)
January 7, 1981
Following five positive sessions, the SPX closed on January 6th at 138.12. On the 7th, the SPX gave back 2.2% to erase the previous four days of gains. The following day gave back another 1.5%. The SPX gave back a total of 6.39% after January 7th before turning back upward.
July 20, 1981
The SPX closed on July 17th at 130.76 after nine consecutive positive days. (Also notice that seven months after the early January occurrence, the SPX is still below the January 6th close.) On July 18th and 19th the SPX closed down a total of 1.25%. Over the next several weeks, the SPX moved down 13% from the July 20th close.
October 6, 1987
If you're a market historian, some dates ring loud bells. October 1987 is certainly among them. The SPX closed on the 5th after four consecutive positive sessions. The 6th gave back those gains. The following four sessions were all negative giving back an additional 3.11%. The index bounced for one session regaining 1.66%... and then history erupted. The following four sessions were all negative and included Black Monday; the SPX gave up just under 31% in these four sessions.
January 8, 1988
On January 8th the index gave up 6.77% in one session following four consecutive positive sessions. The SPX was basically flat the following couple of weeks.
April 14, 1988
After seven positive sessions, the SPX gave up 4.36% on this date. The 15th was flat, followed by four negative sessions. The index gave up 3.41% after the 14th.
June 16, 1988
After four small positive days, the SPX gave up 1.71% on the 16th to erase those gain. The market was soft for several weeks eventually giving up an additional 4.67%.
May 2, 1996
After five consecutive positive sessions, the SPX surrendered 1.71% on May 2nd. The following three sessions were all small negative sessions. No lasting weakness.
January 3, 2000
After four positive sessions, the SPX opened the year by giving up 0.95% to erase the year ending gains. The following day gave back an additional 3.83%. By the end of January the index had given up 7.48%.
March 9, 2001
Four positive sessions were erased by the March 9th 2.48% loss. Monday the 12th followed by piling on additional losses of 4.32%. By April 4th, the index had surrendered a total of 13.24%.
July 10, 2007
Five positive sessions were followed by the July 10th session dropping 1.42%. The next three days were positive but the index gave back 6.84% over the following month. The all-time market top came not too long after that.
January 12, 2010
Following six positive sessions, the index gave up 0.94% on the 12th to erase the previous four days of gains. An additional 8% drop followed by February 5th.
Those are the eleven occurrences since 1980 in which the SPX erased four days of gains during one session. We are now on the 12th instance. It's often easy to draw conclusions based on too little evidence but evidence is powerful that:
1. Four up sessions being erased by one negative session is very rare.
2. Such occurrences would appear to be negative going forward.
Next week might be interesting.
Have a good Sunday!
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"Mel"
