Bulls Beware- Today Was A Very Rare, Atypical Day

While stubborn bulls may have watched today’s action, trying to “play it cool,” let’s face it- this type of action in the market doesn’t happen that often.  In fact, getting a more than 30 handle pull back in the Spooz like we did today (32.25 handles was the daily range) in the midst of a strong market (one in which the 30D change is over 5.5%) has happened just 21 times in the past 10 years.  That number translates to 0.75% of the time since Jan. 2000.  So who are we kidding, today was a very different and rare trading day.

http://www.hedgefundlive.com/blog/bulls-beware-today-was-a-very-rare-atypical-day

So the next logical question should be, what happens after ugly days like today in the context of a bull, barely any pull back market?  Cue the market probability model:

*Blue font denotes input parameters
*Bold font denotes output parameters

Nothing screaming huge sell off again tomorrow (for instance, the probability of closing up tomorrow is 47.62%, still not too bad).  The probability of making a lower low is 61.9%, favouring another pull back, but not to an extreme.  What I am more interested in regarding the above model is that the odds of the next 10D change being up (more than 0%)  are 33.3%, which meets my definition of “low.”  From a gut standpoint,  I don’t expect a bloodbath sell off of the likes of the one we saw in May/June of last year.  But I do expect that it will take at least another 10 days before the market sees a recovery or bounce off the lows.

http://www.hedgefundlive.com/blog/bulls-beware-today-was-a-very-rare-atypical-day

  1D 10D Range Input 30.00   30D Chg 5.50%   Next Day Pct Chg Input 0.00%   Number of Instances 21   Number that Meets Criteria 10 7 Number of Higher High Next Days 4   Number of Lower Low Next Days 13   Number of High Above R4 Next Days 4   Number of Low Below S4 Next Days 4   Probability of Up 0% Next Time Period 47.62% 33.33% Probability of Higher High Next Day 19.05%   Probability of Lower Low Next Day 61.90%   Probability of Ticking Above R4 Next Day 19.05%   Probability of Ticking Below S4 Next Day 19.05%  

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