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What a Bullish Outside Day Means for the S&P 500

Here’s what history says to expect, and why it could mean a shift in market momentum

Senior Quantitative Analyst
May 7, 2025 at 8:00 AM
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A positive signal emerged last week on the candlestick chart of the S&P 500 Index (SPX). On Wednesday, the chart formed a bullish outside day — that is, the high is above the prior day’s high, the low is below the previous day's low, and the market closes positive on the day. This pattern, shown on the chart below, is often seen by traders as a sign of strong buying pressure. When this happens in a down market, it’s considered a potential reversal point. As I often do in these cases, I’ll look at the actual numbers historically to see if there’s any merit to these interpretations.

SPX Index

Drilling Down Outside Days

First, I’m just going to see how outside days have performed in general — that’s any time the high of the day was above the previous day’s peak and the low was below the previous day’s bottom. My data shows 337 outside days since 2010. The table below summarizes the returns for the SPX after those days. Nothing notable performance-wise, but it seems outside days have been followed by less volatility going forward compared to what you typically see, which is the second table below. I didn’t expect to see the average positive and negative returns be smaller across every timeframe after outside days.

SPX General Outside Day

Next, I broke up those outside days by whether they were up days or down days for the SPX. Last Wednesday, recall, was a positive day. Since 2010, bullish outside days have underperformed in the short term compared to bearish outside days. When you get out to three months, however, there was no difference in the average return.

SPX Outside Up Days

Traders often consider bullish outside days during a downtrend as a reversal indicator. The data indicates this as well. Last Wednesday, the bullish outside day occurred with the SPX about 9% below its all-time high made in February. I drilled down the bullish outside days by whether they were at least 7% off the high or within 7%. Historically, the index has performed very well when these days occur well off their highs. There were 48 occurrences, with the SPX averaging a gain of 1.93% over the next month and 75% of the returns positive. When the bullish outside days occurred closer to the all-time high, the index was barely breakeven over the next month on average, with 55% of the returns positive.

SPX Outside Up Days Near ATH

Finally, if you notice in the candlestick chart above, the SPX made a big intraday comeback to finish positive on the day. The index was down over 2% last Wednesday from the prior day’s close before rallying to finish the day positive. I found seven instances when the index was down at least 1% on the day before achieving the bullish outside day. It’s only seven data points, but you can see in the table below, the SPX has done very well after these instances. The SPX averaged a return of 5% in the month after a signal, with six of seven returns positive. As I drilled down on outside days more and more to match our current situation, the subsequent SPX returns kept getting better and better. Hopefully, this indicates where we go from here.

SPX Outside Up Days Near ATH

 

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