Rocky White
4 min read
Last week, I took a closer look at outside days on a candlestick chart of the S&P 500 Index (SPX). As a refresher, an outside day occurs when a stock’s daily high is higher than the prior day’s high, and its low is lower than the prior day's low. Essentially, it engulfs the prior day's range. In that article, I broke down when outside days tend to be more meaningful instead of just noise. This week, I’m applying the same analysis to individual stocks within the S&P 500. By the end, I find a setup that stands out - one I’ll be scanning charts for going forward.
For the following analysis, I looked at S&P 500 stocks since the beginning of 2024. That returned 15,300 outside days total. The table below separates these outside days by where the stock closed on the outside day relative to the prior day’s high and low. If the stock was below the prior day's low then rallied to close above the prior day's high, it would suggest a lot of buying pressure (second column in the table below). On the other hand, if the stock was above the prior day’s high then closed below the prior day's low, it would suggest huge selling pressure (the third column in the table).
The last column in the table below shows non-outside days, which can be used as a benchmark. Stocks tended to be bullish after general outside days. Over the 15,300 outside days, they average about 0.80% over the next month, compared to 0.65% for non-outside days. The percentage of positive returns and the percentage of time they beat the SPX has been about the same for any column. There’s some evidence of mean reversion with the best average return (0.86%) occurring when the stock closes below the prior day’s low. As far as outside days go, the lowest average return is 0.73%, which is when the stock closes higher than yesterday’s high. Overall, however, there’s not a ton here that’s actionable, so let’s drill down further.
Outside days are often considered potential reversal points. With a stock at a high, the selling pressure needed for a bearish outside day suggests a decisive move by traders and a signal that things are changing, vice versa for stocks near a low. Therefore, I broke down the outside days further by whether the stock was near a 52-week high or 52-week low.
The first table considers stocks near a 52-week high and summarizes the performance after outside days, broken down by how the stock closed relative to the prior day’s high and low. In general, outside days on stocks near highs have been slightly bullish. After a bearish outside day (third column) with the stock near a high, the stock beats the SPX just 44% of the time, suggesting it is somewhat of a headwind. The 0.89% average return for the stock, however, means there’s not much of a case to avoid the stock.
