Wednesday, April 12, 2006

Dow Utilities and S&P Reversals

Recently I've been looking at two and three-day sector performance to gauge lead/lag relationships with the S&P 500 Index. In keeping with recent posts, I took a look at the Dow Utilities and how their two-day performance influences SPY over a three-day horizon.

Going back to March, 2003 (N = 783), the average three-day gain for SPY has been .18% (457 up, 326 down). When the Utilities have been up 1.5% or more over a two-day period (N = 79), the next three days in SPY have averaged a loss of -.03% (46 up, 33 down).

When the Utilities have been down by 1.5% or more over a two-day period, the average three-day gain in SPY has been .52% (43 up, 18 down). That's quite an edge.

What we see is that extreme two-day outcomes in the Utilities lead reversals in SPY. Let's see if that pattern holds for other sectors.

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