McClellan Chart In Focus: Friday Reveals Event Risk Complacency – By Tom McClellan

 

Chart In Focus

The SP500’s higher close on Friday was one of several up Fridays we have seen recently.  Moving up or down on a Friday can convey a message about investor sentiment, especially when multiple Fridays see the market go in the same direction.

To be a buyer on a Friday, one has to accept that you cannot get out again until Monday.  So it takes some degree of confidence that “event risk” won’t be a problem over the weekend.  When people are feeling fearful, Fridays are more likely to see a lower close.  And by the same token, bidding up the market on Fridays can be a sign of confidence.

I have played around with different lookback periods, and found that 6 weeks works pretty well.  If you can see 5 out of 6 Fridays going either up or down, that is usually a pretty good indication of a top or a bottom for prices.

By going up on Friday, the SP500 made it now 6 Fridays out of the last 7 weeks.  And that one down Friday was on June 15, which saw the SP500 fall by only 2.83 points, so it was just barely a down day.  This is not quite as compelling an indication in the chart as if we had 6 in a row, but it is usually a pretty good sign that traders are not at all worried about event risk popping up over the weekend and biting them.  And as every good contrarian knows, that is when risk is most likely to appear.

Tom McClellan
Editor, The McClellan Market Report

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About the author

Sherman and Marian's son Tom McClellan has done extensive analytical spreadsheet development for the stock and commodities markets, including the synthesizing of the four-year Presidential Cycle Pattern. He has fine tuned the rules for interrelationships between financial markets to provide leading indications for important market and economic data. Tom is a graduate of the U.S. Military Academy at West Point where he studied aerospace engineering, and he served as an Army helicopter pilot for 11 years. He began his own study of market technical analysis while still in the Army, and discovered ways to expand the use of his parents' indicators to forecast future market turning points. Tom views the movements of prices in the financial market through the eyes of an engineer, which allows him to focus on what the data really say rather than interpreting events according to the same "conventional wisdom" used by other analysts. In 1993, he left the Army to join his father in pursuing a new career doing this type of analysis. Tom and Sherman spent the next 2 years refining their analysis techniques and laying groundwork. In April 1995 they launched their newsletter, The McClellan Market Report, an 8 page report covering the stock, bond, and gold markets, which is published twice a month. They utilize the unique indicators they have developed to present their view of the market's structure as well as their forecasts for future trend direction and the timing of turning points. A Daily Edition was added in February 1998 to give subscribers daily updates on their indicators and also provide market position indications for stocks, bonds and gold. Their subscribers range from individual investors to professional fund managers. Tom serves as editor of both publications, and runs the newsletter business from its location in Lakewood, WA.