THE NUMBERS ARE IN
I must admit I am a bit nervous this weekend about the markets. Dr. Brett, however, has done some homework on the setup of the past two days. His findings:
"We had two consecutive days on Thursday and Friday in which 70% or more of traded issues declined on the day. Since 1990 (N = 4124 trading days), that has only occurred 13 times. The next day, the S&P 500 Index ($SPX) was up by an average .59% (9 up, 4 down)--much stronger than the average daily gain of .04% (2174 up, 1950 down) for the sample overall. Two days later, the S&P was up by an average 1.37% (10 up, 3 down)--considerably stronger than the average two-day gain of .08% (2209 up, 1915 down) for the 1990-2006 sample. What that tells us is that two consecutive down days of very negative breadth is a rare occurrence. It is also interesting that 7 of the 13 next day occurrences led to price changes of greater than 1%, suggesting that volatility follows broad two-day declines."
I am optimistic about the markets for next week and I bought ETF's on both Thursday and Friday due to the buy signals I received on the VIX stretch, the extremely low 2 day RSI readings, and the most oversold breath numbers seen in a long time. If one wants to succeed as a trader, one needs to step up when the signals hit and the buy signals are everywhere.
I will address the STOP OUT area when and if the markets do not cooperate early next week.