Yesterday, when I commented that
"Note that we've rarely seen 6 days of successive gains in the LCR, with the last occurrence being 8/13/10 to 9/15/10. Based on this alone I would not be surprised at some form of pullback."
I didn't expect to see a 39% change to the downside in the Long-Cash Ratio (LCR) in one fell swoop. Putting this in perspective, I have 541 discrete levels of the change in the LCR since we started keeping track. Yesterday ranks as the 12th greatest change in the LCR to the downside in over 2 years of tracking.
This begs the question of "what typically happened after such a dramatic bow shot?"
- November was the most recent occurrence of this drop in LCR. On 11/9 the LCR dropped -22%, then on 11/12 it dropped another -36% (rank 18th), then on 11/16 it fell another -38% (rank 14th). We rallied after Thanksgiving.
- October 19th saw a drop in the LCR of -50% (rank 3rd), and 4 days later it jumped +12% (rank 147th to the upside), and 12 days later it jumped +62% (rank 11th to the upside).
- October 4th saw a drop in the LCR of -30% (rank 31st to the downside), and the next day we whipsawed +47% to the upside (rank 24th up).
- August 11th saw a drop in the LCR of -51% (rank 2nd), and 12 days later it jumped +43% (rank 30th to the upside)
- July 16th saw a drop of the LCR of -39% (rank 13th), and 4 days later (7/22) we saw a jump of +64% to the upside (rank 10th up)
- Here's an interesting sequence:
On 6/29 the LCR dropped -43% (rank 5)
On 6/30 it dropped another -22% (rank who cares)
On 7/1 it dropped another -20%
On 7/2 it dropped another -20%
On 7/7, just 2 trading days after the 7/2 date, the LCR jumped +46% (rank 25)
On 7/8, it jumped another +35%
On 7/9, it moved another +30%
and on 7/13, it jumped +102%, which is the 2nd strongest jump ever. Dead-cat bounce indeed.
- If you've followed this history lesson this far, you're probably wondering about the worse day in GGT history: it came on 5/6/10, when the LCR dropped -71% (obviously rank #1 to the downside). The next 5 days saw slight gains in the LCR: +5%, +14%, +16%, +39% (rank 35 to the upside), and +15%, then it was all downhill with another selloff on 5/20. For those of you who recall, most of the major timing systems signaled a move to CASH near the end of May, 2010.