Consecutive Up/Down Days: S&P500 and NASDAQ Composite
Most traders know by now that many U.S. Indexes and ETFs have closed down for five consecutive days or more as of Friday’s close (December 28, 2012). Below is a quick look at two main U.S. Indexes, the S&P-500 and the NASDAQ Composite, and how they performed 1-5 days after closing down 5-days in a row.
Note: Fiscal Cliff talks are in their 13th hour this weekend and could potentially impact market behavior on Monday, December 31st and the following week.
Disclaimer: I realize 2-years is not enough back-test data to base a trade on. Small sample back-testing is done to give traders an understanding of the odds and probabilities involved.
Let’s look at the S&P-500 first. Here’s a two year chart of consecutive up/down days:
The Blue arrow points to the current streak. Yellow arrows note other times over the past 2-years that the S&P-500 has closed down more than 5-days. Here’s a look at how the S&P-500 has performed one day after being down 5-days in a row:
The sixth day looks fairly bearish on this 2-year back-test with 71% of the observations being negative. On the positive side, the draw downs on the sixth day were not too bad, however the negative bias is worth noting.
Here’s a look five days after the S&P-500 had been down 5-days in a row:
Mostly positive a week later with three observations being down -1% or more and one huge draw down of -7% coming in July/August of 2011. Let’s look at the NASDAQ Composite next.
The next day result for the NASDAQ Comp are mildly bullish with 60% of the observations being positive. Only one day that was greater than -2% on the draw down. Here’s a look five day after the NASDAQ Comp was down 5-days in a row:
Solidly bullish over the past 2-years with only one major draw down that rebounded quite nicely.