SPY Down 1%: Quantified Emotion

After an incredibly weak market performance,  it’s best to put emotions aside and look at the data. We pulled all the days in the last four years in which the $SPY was down 1% or more and still above the 50-day moving average. Granted, there are  many different ways to quantify the current market, but these filters broadly define the market without being overly pedantic.

Here’s a sample of what these days look like (in blue shading):

1-percent-losers-above-50-MA

The statistics over the next five days are decent (~60% producing a positive return) but nothing to really write home about.

1-percent-losers-above-50-MA-stats

The Alpha Curves, on the other hand, focus my attention right where it should be. You’ll notice the dominant patterns all have one thing in common.

1-percent-losers-above-50-MA-alpha-curves-annotated

The period left of the blue line is the in-sample data (the -1% day). Notice that emotional selling the day after a -1% day in the $SPY tends to precipitate a short-term reversal. This phenomenon is not nearly as prevalent when we look at the same -1% days below the 50-day moving average. The math that goes into modeling the Alpha Curves is far greater than goes into the generic stats table. The Alpha Curves is what offers unique insight.

What are you seeing out there?

Charts and analytics by https://www.marketmemory.com/ (BETA)


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