NAAIM 2023 Founders’ Award White Paper Winner Identifies a 5% “Canary” to Warn of Potential Declines Markets

The National Association of Active Investment Managers (NAAIM) has named Andrew Thrasher, CMT, of Financial Enhancement Group LLC, as winner of its annual white paper competition, the NAAIM Founders’ Award. Thrasher’s paper, titled “The 5% Canary,” demonstrates how the speed at which the market experiences initial 5% declines from 52-week highs in the price history has predictive value in the ensuing price direction for the equity market.

“Buy the dip or prepare for further decline? That’s the question presented to investors throughout each trading year as the equity market ebbs and flows,” explains Thrasher.

Historically, most down trends experienced by the S&P 500 have been between 2% and 6%. While 2% to 6% may be within the acceptable risk range for most investors, the declines that move into the double-digit category cause many investors to become uncomfortable and begin to react irrationally. This paper presents a methodology that investors can use to evaluate if 5% declines in the S&P 500 and Dow Jones Industrial Average are likely to continue lower and threaten the risk of a more severe drawdown or offer a mean-reversion bullish opportunistic trade.

“Andrew Thrasher’s paper takes the reader on a journey from a 1696 challenge to the math community to the use of canaries to detect carbon monoxide in mine shafts and a walk through some of the defining literature of active management. The result is an elegantly simple tool for recognizing when there is a high risk of a material market decline,” said Ryan Redfern, NAAIM president and founder of Shadowridge Asset Management LLC.

Like the canary, the observation of a 5% decline in major equity indices within a 15-day period acts as an “early warning” of what could potentially turn into a material decline in the equity market, leading to the title of Thrasher’s paper, “The 5% Canary.”

Thrasher cautions that not all 5% Canary signals result in a steep and material sell-off. Several have been “ignored” by the market and no major decline has come to pass. A form of price confirmation is needed to filter the 5% Canaries that have a higher degree of downside risk from those that the market ultimately disregards.

For the purposes of this paper, two consecutive closes below the 200-day SMA are sought to occur within two months (42 trading days) of an identification of a 5% Canary signal, to result in a “Confirmed 5% Canary.”

Thrasher presented his “The 5% Canary” paper and how it can be used to buy the dips at the 2023 NAAIM Uncommon Knowledge conference in Scottsdale, Arizona.

To view “The 5% Canary” or request past Founders Award papers, visit:  FIND A WHITE PAPER

About Andrew Thrasher  

Andrew Thrasher, CMT, is the Portfolio Manager for Financial Enhancement Group LLC and founder of Thrasher Analytics LLC. Mr. Thrasher holds a bachelor’s degree from Purdue University and the Chartered Market Technician (CMT) designation.  He is a two-time winner of the Charles H. Dow Award from the CMT Association. He was also a finalist in the Best Equity Research and Best Commodity Research categories for the Technical Analysis Awards in 2022. Andrew resides in Noblesville, Indiana with his wife and daughter. His analysis has been cited by CNBC, Wall Street Journal, MarketWatch, Bloomberg, Fox Business, ValueWalk, Yahoo! Finance, Barron’s, U.S. News, TD Ameritrade Network and Opto.


Launched in 2009, the NAAIM Founders Award is designed to expand awareness of active investment management techniques and the results of active strategies through the solicitation and publication of research on active management. $5,000 is presented annually for the best paper submitted to the competition.

The National Association of Active Investment Managers (NAAIM) is a non-profit trade group of nearly 130 registered investment advisor firms that collectively manage more than $15 billion in assets. NAAIM member firms provide active money management services to their clients to produce favorable risk-adjusted returns as an alternative to passive, buy-and-hold investment strategies. NAAIM publishes the weekly NAAIM Exposure Index and sponsors the annual Uncommon Knowledge conference along with smaller conferences and meetings on topics of interest to its membership. For more information, visit