For a day that saw a 6.28-point decline of only -0.75% on the S&P 500 Index (SPX), the day was quite negative with price acting in classic bear-market fashion after a sharp 27-point bear-flag breakdown of -3% after price hit the intersection of a rising-channel trend line and the 62% retracement of the 1/28-2/3 range (see chart below). With the all of this churning, and the index going effectively nowhere over the past 2-days, we look to history for a bit of divination on short-term direction:
Q: How has the SPX performed in the past when it has seen a move from the low two days ago to the high of the current event date of more than 4.5%, yet the difference between the close two days before the event date and the event date is less than 0.8%, when the index has declined by at least 4.5% over the last month?
A: According to the 13 previous occurrences of this event, EventEdge indicates that SPX has shown a somewhat bearish edge that peaks three trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Wednesday, Feb. 4, 2009) is Monday, Feb. 9, 2009. SPX declines in 85% of the cases (11 of 13) by an average of 5.6% relative to the close on the event date. The average of the two rallies is 3%. The overall return of the 13 cases is -4.3%, which, based on the close of SPX on the event date (832.23), provides a target price of 796.44.
Note that this trading idea and subsequent target are, for now, within the confines of Wednesday's bullish take on S&P 500 index futures, as the bullish edge on Wednesday's trading idea on S&P 500 futures takes up to seven days to manifest itself as indicated by the green triangles at the bottom of the MIM chart published with Wednesday's trading idea.
This study was created outside of EventEdge so it cannot be viewed there. However, you may click here to launch the EventEdge® tool with a simple seasonal study for SPX, and can try other event combinations.
Mr. Jay Pasch is a private futures and equities trader based in Minnesota. He may hold positions in the instruments mentioned in his trading ideas.
