On May 9th Dow extended its losing streak to six days. History says that the probability of a bounce now is quite high – 79%.
Since 1970, Dow has seen a losing streak of six days 58 times (excluding current streak). Of these, 43 times the streak went beyond six days.
However, when Dow was above its 200-Day SMA its losing streak of six days occurred only 23 times and it was extended beyond that only four times. That means that there is 79% chance that Dow’s losing streak may end today.
If we do further data analysis then we find that after a losing streak of six days in an up-trend Dow’s average gain on the seventh day was 0.5%, after one week it was 0.7%, after two weeks it was 0.6% and after a month the average gain was 1.8%.
Table below depicts this data analysis in more detail.
| Average On Close |
Max Gain (From High) |
Max Loss (From Low) |
|
| On Seventh Day | 0.5% | 2.5% | (1.2)% |
| Over next 5-Days | 0.7% | 9.2% | (8.3)% |
| 5th Day Close | 0.7% | 8.6% | (5.8)% |
| Over next 10-Days | 0.6% | 12.4% | (7.5)% |
| 10th Day Close | 0.6% | 9.8% | (7.2)% |
| Over next 22-Days | 1.8% | 15.8% | (12.7)% |
| 22nd Day Close | 1.8% | 12.6% | (4.8)% |
Out of these 23 occurrences, Dow closed below its 200D SMA only once the next day, once within 2 to 5 days and once after 10 days. In total, it closed below 200D SMA within next month only three times.
Now this analysis does not take into account any global or economic event’s impact on Dow.
Since, March ’12 US markets have been seeing a greater drag of European problems. Once again, today’ morning news from Europe is not very cooperative. Nevertheless, for the last three days, US markets have either stabilized or gained after European close. So let’s see how the market behaves. Still, there is good chance that Dow may close above 12,900 today and may be above 13,000 a month from now.
Update:
Next Day Action: On May 10th, Dow closed up for the first time in seven days, though only by 19.98 or 0.16%. It did not close up by the past average. The highest intraday gain was 96.65 or 0.75% and maximum intraday loss was -0.11%.
After a week: On May 16th, Dow closed 236.51 points below its May 9th close or a loss of -1.84%. During this time the max intraday gain was 0.75% (achieved on first day) and the max intraday loss was -1.85%. So far it looks like that Dow’s losing streak is going to result in a performance below the historical norms.
After 10 Days: On May 22th, Dow closed 332.25 points below its May 9th close or a loss of -2.6%. During this time the max intraday gain was 0.75% (achieved on first day) and the max intraday loss was -2.7%.
After one month (22 days): On June 8th, Dow closed 280.86 points below its May 9th close or a loss of -2.2%. During this time the max intraday gain was 0.75% (achieved on first day) and the max intraday loss was -6.2%.
