On Thursday the market finished higher for the third day in a row. In my “Count To Three” post back in February I showed how 3 higher closes when the market is trading below its 200-day moving average has a negative expectation over the next week or so.
Below are some more detailed statistics of how the market has responded to this pattern:
So the move we’ve seen over the last 3 days creates a negative expectancy in the near future, right? Not so fast. Notice how NYSE volume rose over the prior day on both Wednesday and Thursday. Higher volume on up days is supposedly a good thing. So let’s break it down further.
In this next table I show all instances when our volume pattern of rising two days in a row didn’t occur:
So now let’s look at those times when the supposedly positive volume pattern of the last two days played out:
Quite a striking difference. The increasing volume changed the expectation of the price pattern from strongly negative to solidly positive. This is an example of why traders should not simply look at price in a vacuum.