The Market Has Not Seen a Strong Up Day for Longer Than It Has Not Seen a Strong Down Day

It is a fact that the S&P 500 hasn’t had a -2% drop in the last 68 days but it also hasn’t had a 2% rise for 193 days. The market has given bears plenty of room to escape.

This market has been very gentle with bears and gave them plenty of room to rethink and escape disaster because it has been rising with small daily changes and without strong short squeeze rallies. The S&P 500 chart below shows that there hasn’t been a +2% daily gain in S&P 500 for the last 193 days. During last year, no greater than 2% rise occurred for 194 days. At the same time, the index has not dropped -2% or more for 68 days.

SPX_20140718

The top indicator pane shows daily returns and statistics since 01/1960. The mean daily return is +0.031% and the standard deviation is about 1%. About 47% of returns were negative. Thus, this index has managed to grow since 1960 about 3,200% before dividends are added and %17,500% on a total return basis with dividend reinvestment with a daily return win rate of only 53%. This shows the tremendous power a small bias can offer to an investor or trader provided the mean return is positive. It took me some time to realize that a large bias is not required to profit if one is constantly in the market. But infrequent trading needs a high bias to compensate for out-of-the-market periods.

Bears have been offered ways out this year with the market making small gains and without a large drop. The second pane shows that 193 days have elapsed since a +2% rise in the S&P 500 index while last year this happened for 194 days. The bottom pane shows that the market dropped more than -2% just 68 ago. Bulls have been scared more than bears although the market has been on an uptrend, also due to the persistence of the financial media and various self-proclaimed or advertized experts to call a top each time the market drops more than 0.5%.

Those who are seriously studying price action behavior should place the above statistics in proper perspective. The small long-term positive bias and the positive expectation of stock market may be structural effects that will not change as long as this economic system is in place and it may even get higher.

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Disclosure: no relevant positions.
Charting program: Amibroker
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