On Wednesday's session the market more than fulfilled all positive seasonal tendencies (e.g. the first week in December, see Seasonalities: The Market's Performance in December) and favorable short-term setups (see ) right at the start of the month, closing higher +2.12% and leaving an unfilled gap up of +0.86% (today's low above the previous session's high). 484 stocks being part of the S&P 500 penetrated their previous session's high while only 11 stocks penetrated their previous session's low, the 5th occurrence (only) since 1990.
In addition, the ratio of S&P 500 Advancing / Declining issues and the ratio of S&P 500 Advancing / Declining volume closed above the 20 mark, the 18th occurrence since 1990 (probabilities for trading higher 3 sessions later are slightly above, but probabilities for trading higher 5 sessions later are slightly below at-any-time chances for a higher close 3 and 5 sessions later respectively).
But when the SPY left an unfilled gap up greater than +0.75% in the past, buying power was regularly exhausted for the short-term, and historical probabilities and odds are tilt in favor of lower prices over the course of the then following at least three sessions.
Table I below shows all occurrences and the SPY's historical performance (since 01/01/1990) over the course of the then following 1, 2, 3, 4 and 5 sessions, assumed one went long on close of a session where the SPY had left an unfilled gap up greater than +0.75% in the past.
(* no close below trigger day's close during period under review)
It is interesting to note that
- ... the SPY closed lower (than the trigger day's close) 3 sessions later on 12 out of the last 14 and 8 out of the last 9 occurrences ;
- ... the SPY never looked back and did not post a single close below the trigger day's close over the course of the then following 5 sessions on 4 out of 20 occurrences, but did not manage a single close above the trigger day's close over the course of the then following 5 sessions on 7 out of 20 occurrences.
From a statistical and historical point of view, after leaving an unfilled gap up greater than +0.75% probabilities (winning percentage) and odds (expectancy) are tilt in favor of some consolidation over the course of the next three sessions (in this event probably until Monday, December 6).