Market Insights: An extremely rare signal in the S&P 500

An extremely rare signal in the S&P 500

We always take pleasure in shedding light on some of the more obscure and lesser known occurrences in the stock market, and for this post we are looking at a very rare occurrence indeed. Specifically, a signal in the U.S. stock market that has never occurred before, at least according to the data we have access to.  When we see something that has apparently never occurred before, we scour our sources for data to refute it.  In this case, we did find one source indicating the signal could possibly have occurred once before, way back in 1970, although we can't verify it.  In any event, if not “unprecedented”, then certainly “extremely rare”, would be the best way to describe it.  

“So, what signal is this?” you might ask.  It is called an 'Inside Day'.  An Inside Day is when the entire daily price range of a security (in this case we are referring to the S&P 500 index) falls within the price range of the previous day's range.  It is often used to signal indecision because neither the bulls nor the bears are able to push the market beyond the range of the previous day.  The signal is triggered once this indecision is settled, either higher or lower, and indicates the markets want to move further in that direction.  

An Inside Day in itself is not that rare, but a Double Inside Day, when this occurs two days in a row, is fairly rare.  In fact, it has occurred just 28 times since 1950.  In 15 of those cases, the signal was positive, and 13 negative.  And, yes, (you guessed it!), a Triple Inside Day is extremely rare, and as we mentioned, data indicates it has never occurred before the instance this week!  The last day of this Triple Inside Day was Monday.  On Tuesday, the signal was resolved with the S&P 500 moving higher, thus giving a positive signal.

What does this very rare happening indicate for futures prices?  Well, since we don't have any precedence for a Triple Inside Day, we had to seek out the data for Double Inside Days.  Below is a table from J. Lyons Fund Management Inc. that shows what has occurred in the past for the following year after the signal, broken down by whether the signal was positive or negative.  As you can see, it is a good result for the positive signal.  One can only hope that this one-and-only Triple Inside Day signals even better future results.

 

 

Source:   J. Lyons Fund Management Inc./My401kPro.com