MORE FACTS

I was just reading one of my favorite trading blogs "Trader Feed" authored by Dr. Brett Steenbarger. He also writes for TradingMarkets.com and he has done some great research on market tendencies. His latest findings seem to emulate my trading strategies of buying lower and selling higher. Here is what he says:

"I'm following up on the broad market's countertrend tendencies. When my trend measure registers that the market is trending over X time periods, it appears that the next X periods tend to reverse this trend. I need to research this further but, if true, this countertrend equivalence could be a solid basis for combining time frames in analysis. In other words, let's say you had a strong downtrend reading on an intraday basis *and* on a multiday basis. That should provide an excellent signal for a longer-term market purchase.

I went back to March, 2003 (N = 766) and examined five-day trend readings in SPY and then what happened in the *next* five days of SPY trading. When SPY displayed a strong five-day downtrend (N = 104), the next five days in SPY averaged a gain of .80% (68 up, 36 down). That is much stronger than the average five-day gain of .31% (448 up, 318 down) for the overall sample. When SPY displayed a strong five-day uptrend (N = 196), the next five days in SPY averaged a gain of .17% (108 up, 88 down), weaker than the average five-day gain for the broad sample.In short, five day trends are tending to reverse."

This to me is great stuff and really validates (for now) my trading strategies. So when you see Bob Pisani et al yammering about new highs, fade em, and when they are depressed about the sell off, buy em.