Jan

4

Days with big a range between the high and low come in three types: Close near high, close near low, close not near either. In SPY, yesterday’s range was greater than 1.5% [ (H/L)-1 ], and the close was not that near to the high or low.

SPY daily since 1/2003 was used to check five day returns following:

1. Range > 0.015 (1.5%) and close within 0.002 (0.2%) of low
2. Range > 0.015 and close within 0.002 of high
3. Range >0.015 and close not within +/- 0.002 of H or L (middle
range, like today)

Here is ANOVA of means, comparing five day returns of the three conditions with non-overlapping five day returns (there is some overlap in the conditions, especially when market was more volatile, and in the case of a close near the low — So inference is limited):

S = 0.01823 R-Sq = 1.07% R-Sq(adj) = 0.19%

Individual 95% CIs For Mean Based on Pooled Standard Deviation:

Level                N          Mean         StDev
if >1.5,L<.2      40      0.00780       0.01947
if 1.5,h  <.2      31     0.00607       0.02111
if 1.5,mid         67     0.00503       0.02174
5d return        201     0.00254      0.01612

All three high-range days were followed by five day returns greater than average, with those closing near low being highest, and those near the mid (like now) being the lowest (all non-significant).

High-range days are not as common as a few years ago, and are highly correlated with volatility. I used the same SPY series from 1/2003 and looked at, for every 20 days counted, the number of H/L > 0.015 as well as standard deviation of daily returns. Here is the correlation:

Correlations: s.d. 20, countif

Pearson correlation of sd20 and countif (H/L>0.015) = 0.876
P-Value = 0.000


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