Yesterday’s SPY Action Suggesting More Selling?

It’s quite rare for the market to 1) gap up large and then 2) close down on the day BUT 3) a good distance off its lows. Yesterday the SPY didn’t even close in the bottom 25% of its daily range. Even bounces much smaller than yesterday’s late day bounce can take some of the positive energy away from the next day. In last night’s Subscriber Letter I loosened the parameters a bit and still was presented with a rare but fairly compelling setup. Indications were bearish over the next few days, with 2 and 3-day exits both showing all 7 previous instances with negative returns. Below I show all trades using a 2-day exit.

The number of occurances is low but when stats are this overwhelming I make sure not to ignore them. Especially notable is that every instance saw an intraday low at least 2.7% below the entry price at some point in the next 2 days.