I did a quick look at what happens after 4 days of higher highs. It has happened 165 times since 1993, which averages less than once a month. Looking at the dates, they tend to be somewhat bunched, meaning often it will occur two or three times within a month or so time span, and then not again for a few months. For example, it happened 11/20/2008, 12/1/2008, 12/23/2008; prior to that the closest was 7/14/2008 and after that the closest was 3/6/2009. As to what happens after string of 4 consecutive higher highs, the simple answer is not much different than any other time.
4 higher highs | anytime | |||||
total | 165 | median | 4289 | median | ||
higher than close | 159 | 96.36% | 1.19% | 4096 | 95.50% | 1.47% |
lower than close | 158 | 95.76% | -1.14% | 3988 | 92.98% | -1.34% |
higher high | 137 | 83.03% | .79% | 3497 | 81.53% | 0.93% |
lower low | 116 | 70.30% | -0.56% | 3120 | 72.74% | -0.74% |
After 4 higher highs, the likelihood of a getting a high over the next 5 days than the close of the 4th consecutive high is slightly higher 96.4% vs 95.5% that happens on a random trading day. The likelihood of a low over the next 5 days than the close of the 4th consecutive high day is slightly higher 95.8% vs 93.0%. The likelihood of a higher high over the next 5 days is 83% vs 81.5%.
The one thing that does seem to be the case is that the range is a little smaller – the median highest high over the next 5 trading days is .79% after 4 consecutive highs vs .93% on any trading day. and the low is -.56 vs -.74%.
Of the 165 occurrences that lasted 4 days or more, 70 stopped at 4 days (42%), 42 stopped at 5 days (25%, or 44% of those that lasted 5 days or more). The rest (54 = 32%) lasted over 5 consecutive days. So it is better than a coin toss that tomorrow will have a higher high (and over 83% chance that you will see a higher high over the next 5 days).
Note, this discussion does not touch on the closing price over the next 5 days, just the highs or lows.
Leave a Reply