Wednesday, December 21, 2005

Up On the Day, Down From the Open

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Well, Wednesday was interesting in that it followed the recent posts on this blog. We did see strength after the flat day in a downtrend, and we did see weakness following an up open.

One other thing interesting about Wednesday: We were up for the day, but down from the open. Looking back to January, 2003 (N = 747), I found 60 days in SPY that were up days, but which closed below their opening prices. Two days later SPY averaged an impressive gain of .57% (43 up, 17 down). All other occasions averaged a two-day gain of .05% (356 up, 331 down). If you go back to earlier posts on breadth, you'll also see favorable forecasts arising from relatively flat days that had strong breadth (such as Wednesday).

An up day that finishes below its open sounds weak on the surface and might lead to expectations of weakness the next day. Such expectations have not panned out since 2003.