Is it possible to extend the idea of examining short term patterns (number of days up/down, percent up/down, etc.) to determine short term direction to a longer time frame? In the plot above the blue line is the closing price of SPY. The green portion is the most recent 65 days of the SPY price data. The red line is the correlation of the most recent price data to the past price data. The plot only shows when the correlation is reasonably high.
The high correlation zones from 2003 to 2007 were good buying opportunities. However, the high correlation zones from 2000 to 2002 were good selling opportunities. This leaves us with no conclusion unless we already have an opinion about the big picture direction of the market. The longer time frame also means that we do not have a significant number of instances from which to make a decision.
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