A method to give a person perspective on where the overall market
is relative to its history is to count the up days and down days. One of the
benefits of looking through this analysis is to be able to see when a market
has run up further and longer then its historical average of up and down days.
I would never trade based on this indicator as like any indicator it can give
false readings. Using this method probably holds less value for looking at
stocks due to the more volatile nature of individual stocks and reporting seasons
and news data, which could potentially throw the data out.
If we look at the SPY we can see that since 1993 the market
has had 2852 up days and 2514 down days. This gives us an average count of
1.13. What this means is that as an average the market has trended upwards. Anyone
looking at a chart over that period of time, can easily determine that for one’s
self.
However, when we look further and take a snap shot of a 365 day count
range, the average comes out at 1.36. This means that the market has had more
up days then down days then the average. So to bring that back into
perspective, to get the market back to its average the market has to either
trend sideways for a period of time so time value catches up, or we are looking
for a time period of more down days then up days to compensate and bring it
back to its average.
If you ponder this thought a bit more, the range between
both is 0.23. The last time the distance between both the all time average and
the 365 average was this amount was in 2011 where the share price in February
was 134 and fell to about 113 in August a fall of about 16% over 6 months. Half
of that were sideways movements and then a sharp fall from July into August.
This exercise is to point out the count of the up and down
days.
The chart below shows information on this:
When comparing this to the XJO from the Australian market we
can see that the trend is roughly the same. The all time average is 1.10 and
the current XJO stands at 1.26 based on the 365 day average. The data shows
that the US market has had more up days then the AUS market, what does this
mean? Well not much really, but one could say that when the market pulls back,
over an aggressive short term, or pulls back slowly over the longer time frame,
the numbers show that the US market has more to move then the AUS market.
