Bull markets and three up days in a row go hand-in-hand. They account for near three percent of all days when the price trend is up – but only one percent during bear markets.
Yet the distribution of these runs over the last four price cycles, shown in today’s diagram, could signal a warning. Note their frequency in 2007, just before that market hit its top; there were eight repeats before prices dropped in October. There were eleven such days the year before, in 2006.
Similarly, the previous expansion, which ended in 2000, had ten of these three-day advances in the two years before prices turned down.
Yet if these are a bear market warning, they come with a substantial lead-time, resulting in lower prices only months after their occurrences.
As for tomorrow, the S&P500 moved higher on the following day every time on each of the four previous three-day advances this year. The DJIA and the NASDAQ, however, had an even number of increases and decreases so far this year.
DJIA .59 percent
NASDAQ .16 percent
S&P500 .53 percent
