Now I Am Up, Now I Am Down. Fooled You Again. So Says The Market. But, You Can Do Better.

The market volatility has increased significantly this year. Last year was very sedate and the major U.S. indices inched up gradually and with much more certainty than this year.

In the year 2014, the Dow Jones Industrial Averages closed up or down by triple digit from previous day’s close on 81 days or 32% of times. So far this year, Dow has closed up or down by triple digit from previous close on 28 days or 55% or times. Last year, a triple-digit move represented an average minimum change of 0.60% for Dow. This year, due to Dow’s higher absolute level, a triple-digit move represents an average minimum of 0.56%.

% of Times Dow Jones Industrial Averages Closed Up or Down
> 0.5% Change > 0.75% Change > 1.00% Change
In 2014 40% 23% 14%
In 2015  55% 47% 33%

Other indices have behaved similarly in 2015. Here is how their daily changes have been in 2015.

> 0.5% Change > 0.75% Change > 1.00% Change
S&P 500 53% 43% 31%
NASDAQ Composite 51% 43% 31%
Russell 2000 55% 41% 31%

YTD Performance

YTD PerformanceToday the market is having a down day with Dow trading more than 100 point below yesterday’s day. It is possible that a big down close may erase Dow’s year-to-date gain.

However, as of March 16, 2015 close, all major indices are in positive for the year. Still, only NASDAQ and Russell 200 have shown more than 50% probability of eking out a positive close from previous day for 2015. Here is how the YTD gain and Day’s Up Probability stack up for the indices.

Not All Days Are Created Equal

Average Performance By WeekdaysThe market has demonstrated a tendency to change direction multiple times during any given week. However, major indices have shown distinct propensity to be either up or down day or certain days of the week.

Here is a chart showing the average performance of major indices for each week day.

Thursday clearly stands out as the day with significant gain. Monday is the only other day with positive average change. Friday and Tuesday have greater bias to be down days.

The probability of a positive change by weekday reflects the average gains pattern. By combining the probability with average change, we find that average down days are sharper than average up days for all days except Thursday. Monday still ekes out a positive average gain because it is up more times than down.

Probability of Positive Change By Weekday
Digger deeper within the data, we find that NASDAQ and Russell’s performance on Thursday stand out. These two are also doing relatively better than Dow and S&P 500 for the year.

NASDAQ has a 90% chance to be up on Thursday and 70% chance for Monday. Russell 200 has 80% and 70% for these two day. But, their down moves on these days are deeper compared to the down moves of Dow and S&P 500.

Here are the average down and up moves of indices on Thursday and Monday.

Change on Monday
DJIA S&P 500 NASDAQ Russell 2000
Average Up Move 0.8% 0.8% 0.6% 0.6%
Average Down Move -(0.8)% -(0.8)% -(0.9)% -(0.9)%
Change on Thursday
DJIA S&P 500 NASDAQ Russell 2000
Average Up Move 1.2% 1.1% 1.0% 1.3%
Average Down Move -(0.3)% -(0.4)% -(1.5)% -(1.0)%

How To Use This Information?

So far there is no indication that market’s uptrend is broken or that it is under pressure. The up and down movements this year are looking more like the normal gyrations within an uptrend than signs of it breaking down.

Surely, the uptrend looks to be extended both in terms of duration and percent gain but that in itself is no reason to believe that the uptrend is coming to an end. The chart patterns give perceptible signals when a trend either stops, stalls or reverses. As of now, the charts are singing that song yet.

So it means that when in doubt one should play the market to the upside. The indices performance and tendencies by weekday should be used a guidance for any short-term trading or investment decisions.




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