The S&P 500 has now tied a record with 9 consecutive days trading within the range set 10 days ago; what are the ramifications of the streak and its resolution?

Last Monday, we noted that for the first time in the history of the S&P 500, the index put together 3 consecutive Inside Days. That is, for 3 straight days, the high-low range was inside the range of the preceding day. We have no record of that ever occurring since the inception of the index in 1950. As noted in that post, “the idea behind the supposed usefulness of such events is that it signifies a contraction in prices and indecision among investors. Trading textbooks would say that whichever way prices eventually break out of such a contraction (i.e., up or down), it is likely to determine the direction of the subsequent trend.” While no signal works 100% of the time, a study into price behavior following historical Double Inside Days in the S&P 500 did provide evidence for the theory that the direction of the initial breakout is a good indicator of the direction of the subsequent trend.

Well, since the S&P 500 initially broke the Triple Inside Days by putting in a higher high on December 20, the suggestion was that more upside was to follow. That hasn’t panned out – yet. The index closed today roughly 1% below its “breakout” close. So, it has work to do if it is going to perform according to the textbooks.

While that unprecedented inside streak came to an end, there is another inside streak that also reached an all-time record today. As mentioned, December 20′s high was higher than December 19′s high, breaking the consecutive Inside Day streak. However, if we look at the range of the day, December 14, that marked the beginning of the Triple Inside Days, we notice something quite remarkable. The high on December 14 was 2276.20 and the low was 2248.44. During the 9 trading days since, the S&P 500 has been unable to either eclipse that high or drop below that low. This is just the 2nd time in the history of the index that it has traded for 9 straight days without moving beyond the range set 10 days ago.

If we want to study price behavior following similar historical occurrences, obviously we need to relax the parameters given the fact that there is just a singular precedent: June 28, 2006. Therefore, we looked for instances of 5 consecutive days trading within the range of 6 days prior. This yielded 14 previous events since 1960.

In reviewing the data, we could not discern any clues as to the direction of the eventual range break based upon the lead up to the inside streak. Thus, as the chart shows, we broke down the 14 events based on which direction they broke out of the range. Here are the dates on which the streaks reached 5 days, the number of days the streaks would reach, and the direction of the range break: