Continuing the investigations of the past couple of days, I redefined my Speculative and Non-Speculative stock universe to focus on larger companies more similar to those within the S&P 500. I also decided to compare Spec stock performance to the S&P 500 performance itself, rather than to Non-Spec performance.
In this study, I went back to March, 2003 (N = 746) and found 75 days in which SPY was up by 1% or more. Two days later, SPY was up by an average of .12% (44 up, 31 down). This is not significantly different from the average two-day gain in SPY for the sample overall: .12% (407 up, 339 down).
When I divided the strong SPY occasions in half, however, based on the relative performance of Spec stocks vs. SPY, a pattern again emerged--one compatible with my original hypothesis. When Spec stocks were strong, the next two days in SPY averaged a gain of .28% (24 up, 13 down). When Spec stocks were weak, the next two days in SPY averaged a loss of -.03% (20 up 18 down).
It thus appears that strength in the S&P 500 is more likely to continue in the short run when speculative stocks are outperforming the broad market. When speculative interest lags, strength in SPY is less likely to persist in the near term.
Using the same sample, I then looked at occasions when SPY was down by 1% or more (N = 72). Overall, when SPY has been weak in this manner, the next two days in SPY have averaged a gain of .30% (37 up, 35 down), stronger than the average two-day gain for the sample of .12% as outlined above.
When I divided the sample in half based on the relative performance of the Spec stocks vs. SPY, the pattern was more muted. When Spec stocks were relatively strong, the two days following a weak SPY averaged a gain of .36% (18 up, 18 down). When Spec stocks were relatively weak, the next two days averaged a gain of .23% (19 up, 17 down).
My next studies will look at the Non-Spec stocks; then I will extend the analyses to multi-day patterns.