Tuesday marked the 3rd close lower in a row for SPY.  Three-day pullbacks will often trigger a few bullish studies.  The one below is the one I found most interesting.  It was featured in last night’s subscriber letter.  It looked at other times that SPY had a 3-day pullback from a 50-day high, and that pullback was deep enough to put it below the 10ma, but not deep enough to see it at a 10-day closing low.  I have updated the stats table below.

 
Under these circumstances, it appears bounces have been both reliable and powerful.

QQQ made both a lower low and a higher high on Wednesday versus the day before.  That is often referred to as an “outside day”.  Outside days are not terribly unusual.  What is unusual is that it happened fort eh 2nd day in a row.  In the past the simple fact that range has expanded for the last 2 days has led to a short-term rally.  I last showed this in the 8/22/12 blog.  Below is an updated results table.

The numbers all appear impressive.  I also produced an equity curve that assumed a 1-day holding period.

The persistent upslope is impressive and it serves to confirm the upside edge.

Thursday the SPY managed to close at a 5-day low after 16 days without doing so.  This triggered the study below, which I last showed on the blog May 25th.

Results here suggest a moderate upside edge.  As I have said before, persistent uptrends normally wither before they die. They rarely just turn on a dime.  It appears unlikely that SPY will be faced with a lot more selling before it manages to bounce.

SPY has now gone 12 days without closing below its 5ma. The study below is one I’ve shown a few times over the years.  It looks at other instances in which SPY has traded above the 5ma for at least 2 weeks and is now closing at a 10-day high. All results are updated.
 

In the past this setup has commonly been followed by a short-term pullback. The downside edge doesn’t last long, though. It seems to pretty much play itself out over the first 2 days.  It is not an overwhelming edge, but it is still worth noting that SPY has been short-term extended for a while and the normal course of action at this point is a little pullback.

Many traders view reversals like Monday as a positive.  The fact that the market overcame a gap down and was able to close in the black and near its highs is interpreted as a sign of strength.  I’ve looked at days similar to this in the past and found that most often they are actually followed by short-term market weakness.  Below is a study that looks at situations like Monday’s.  It assumes a 1-day hold.

Eleven of 15 instances have closed down the next day.  Of course that is a bit of a small sample size, and another concern is the fact that it has been over 4 years since the last instance.  Still, I think the study is worth some consideration.