July 18, 2012 Do ‘Gains Continue’ Imply Losses Ahead?
Prices advanced for the second day in a row, a not common pattern: just 218 such closes in this century. We continue this review, adding yesterdays pattern of 94 closes of a loss, and the day before with a single gain. This yields 33 days, since 2000, of +2/-1/+1.
In the past, losses outnumbered gains on the following day by a ratio of 58 percent to 42 percent.
Further, the preponderance of next day losses increased when prices were moving higher. For example, the 2003/2007 expansion had 10 declines and just 4 gains; but the subsequent 2007/2009 decline saw three advances and only two declines.
Accordingly, we infer a possible rule of thumb: a gain tomorrow implies lower prices in the future, whereas a loss could mean that prices will continue higher.
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