JUST THE FACTS

In light of Revshark's comment earlier today, I went back to my library and researched information from a book called How Markets Really Work written by Larry Connors (founder of TradingMarkets.com) and Conor Sen of the Connors Research Group. The authors analyzed certain market data from 1989 thru 2003. Some of their very telling results are summarized below and I quote from it:

"First we looked at the SP 500 from 1-1-1989 through 12-31-03. We then looked at how the SPX performed every day during that period of time. We found that the SPX had gained an average of .04% per day and an average of .19% per week for the 15 year period, reflecting the bull market move.

We then looked at the average daily gain of the SPX after it made a new 5-day (intraday) high. Remember, new highs are supposedly a sign of strength, are "breakouts," and are considered by many a time to buy. What we found was the opposite. These new highs underperformed the average daily market. Their average daily gain for the next day was half coming in at .02%. We also looked at how these "breakouts" did over the next week and again we see them underperforming poorly. In fact the average 1 week gain was .03%, far less than the average weekly gain of .19% over the same period.

Ten day new highs, which are considered even stronger markets to be buying, showed even worse results. Their average daily gain after the SPX made a new 10 day high was zero. The weekly results were just as poor, also showing no gain.

We then looked at when markets were acting poorly. We looked at the performance of the SPX after it made a new 5 day low. Again, our findings were completely at odds with conventional teachings. We found that the average daily gain after a 5 day low was .06%. The average weekly gain was .47%, outperforming the average week and far outperforming the week following a 5 day high. The 10 day new lows showed similar performance. The average daily gain following a 10 day new low was .12% and .56% for the weekly gain."

Very interesting information indeed and sheds further light into my strategy of buying lower and selling higher.

I will post more information and facts from this and other books in the future.