Jan

24

Recalling that SPY weeks in bear market of '00-'03 did not reverse nor continue significantly (correlation insignificant), but bull '03-'07 did reverse (significant negative correlation), what made this happen? This question was analyzed by isolating responses following up and down weeks in both markets:

MKT   UP CORR   UP RSQ    DN CORR    DN RSQ
BEAR    0.39         0.148      -0.13         0.017
BULL   -0.03         0.001      -0.05         0.003

The bull market showed slight reversal after both up and down weeks, the same direction of which combined to form a significant negative correlation.

Paradoxically, the bear market had a positive correlation after up weeks (up followed up), and moderate reversal of down weeks. The combination made the overall correlation insignificant.

So at least on a week-to-week basis, bear markets trend positively after up weeks and bull markets tend to reverse both up and down weeks (like eels swimming up a river).


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