Wednesday, October 27, 2010

Odds for the Dow on 10/28/2010

Even I was a little surprised to see all conditions/conclusions I talked about yesterday coming true today. I was expecting the selling to stick. Here were the conclusions I had reached based on yesterday's report:

1) A down day
2) A gap down that never filled
3) A close in the 0 to -0.5% range

I'm adding a new category for unfilled gap predictions. That brings our stats to:

Direction: 5/5
Range: 5/5
Significant High/Low: no instances
Unfilled Gap Predictions: 1/1 (occurs when the probability of a negative high/positive low >= 14%)

I know for a fact that this isn't always going work, because I saw some cases where it failed in back-testing. Even though I'm happy to see a 5/5 ratio so far, I know that this isn't going to work one day. I'd be content if it were 70% accurate.

The odds look positive for tomorrow. Also, we have a potential unfilled gap scenario now on the positive side because the odds of a positive low are 14%. A tentative sell signal was given in the vix today because it closed above the bollinger band mid-line, but since it was a reversal bar and none of my other systems confirmed the signal, I'd say the overall up trend is still technically in tact. I am starting to see some clear evidence that the market behavior is deviating from the March/April comparison. The two aren't working out the same. There should have been a major distribution day by now. I also think with two substantial gaps down in a row, that a large third gap down tomorrow is less likely.

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