Food for thought
Almost bought one position at the close. Really looking at WDC.
For the next leg up looking at ZRAN OVTI AMKR AUGT GNSS CY and ALTR
Good Luck
Don
Go to the link at the bottom of the page to get the figures I can't copy and paste those.
Much attention was given after Friday's close to the fact that the Dow had its best one-week percentage gain since 1982, and I went back and ran the numbers for the 20 largest one-week jumps in the Dow Jones Industrial Average since 1970. My expectation was to see that in bear market environments, you can see big one-week moves that end up being fakeouts that result in future losses, while in bull markets these rallies would serve to further build upside momentum. Here are the results:
Dow Industrials Biggest One-Week Gains and Subsequent
Returns
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As you can see, the bottom line average returns are very favorable. You notice several clusters of time periods where we saw multiple signals, such as 1974, 1982, and 1987. The 1982 and 1987 examples were the start of sustained new uptrends, as was the last Gulf War initial rally in January 1991, plus the October 1998 bottom coming off the Long-Term Capital hedge fund debacle. In the 19 other cases, 13 of these signals (68%) resulted in gains four weeks later and 14 out of 19 (74%) were winners after 13 weeks (roughly three months). At the half year point 26 weeks later, in 18 cases only one example from the first June 7, 1974 signal was unprofitable. Interestingly, the full year point saw a few more move into the loss category, though 14 of 18 (78%) were profitable 52 weeks later.
You also notice that when we have gains in the Dow over the first few weeks, those gains are usually maintained one year after these signals. Only once in September 2001 did we not maintain the gains at the 52-week point. When we start out with a loss after four weeks, the results one year later are more mixed. In six negative 4-week readings, we saw half of those see losses at the 52-week point and half reversed to gains.
The cluster effect I mentioned earlier also appears significant, compared to lone signals in a given time period. The first signal in June 1974 was not a good one, but the second and third signals in the fall of 1974 proved quite effective looking out over the six to 12 month periods. The second buy signal in 1982 proved there was more upside ahead, as did the back-to-back strong weeks in December 1987 as the market bottomed after the Crash. Lone signals since this bear market began, such as the week after the market top in March 2000 and September 2001 have not proved effective, so if there was one thing the bulls should want to see here, it's another super-strong week for the Dow to suggest this is not another lone fakeout.
The bottom line here is that we would like to see another upside burst for confirmation. But in our longer-term view the historical averages suggest that the bears should not get too comfortable in betting that the next 52 weeks is going to be a bearish one. That would be fighting the odds, and success as a trader is all about putting the odds in your favor. As a follow-up, I'm compiling data back into other deep bear periods like the 1930's to see how the Dow one-week gains turned out over a longer data sample. I'll keep you posted on the results.
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