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S&P 500 Statistics Near Crucial Support Agree With Technical Analysis
Posted on October 11, 2014
The S&P 500 index closed one point above its 200-day moving average on Friday, having dropped 3.14% for the week and 5.23% from its all-time high. This correction is still within normal bounds and the statistics do not point to a major top formation, at least for now.
The top indicator pane on the above daily S&P chart shows daily changes. Although daily volatility has increased, it is still within normal bounds and below levels encountered during major tops or medium-term corrections, like that of 2011 (Note that the statistics include data since 1960). The second pane shows the 16-day changes, since the index made an all-time high 16 days ago. The last 16-day change of -5.23% is within the two standard deviation band of -7.2%. It may also been seen that same period returns near major tops exceed that band. The third pane shows that the index price has stayed above its 200-day moving average for 477 days and that is in excess of 20 days from the three standard deviation band of 456 days. Thus, the current correction may be just an “over-extension” adjustment rather than the beginning of a major top. Still, if next week the index drops more than 2%, this could be a signal of a potential top formation, according to statistics. Therefore, the index must find support around its 200-day moving average so that a major top or a protracted correction is avoided and a recovery is possible in the short-term. This is a rare time that statistics agree with technical analysis.
Weekly changes in S&P 500 are shown on the indicator pane of the above chart. The last change is -3.14% and it is still within the two standard deviation band of -4.2%. A major top or a protracted medium-term correction would require weekly changes at least 1% higher than the last one. Therefore, another large drop next week, below the 200-day simple moving average, may signal a major top formation. Actually, the two standard deviations band of 2-week changes is at -5.8% and thus an additional 2% drop from these levels may signal a top, in agreement with the daily chart.
For now the above statistics point to a normal correction towards testing the 200-day moving average and the probability of a short-term bottom is high so anyone who has shorted or plans to short this market should keep these statistics in mind. |
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发表于 2014-10-10 08:44 PM
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