Wednesday, August 20, 2008

Potential Bad Breadth Bounce On Tap

The selloff from Monday followed through on Tuesday. For the second day in a row declining stocks outpaced advancing stocks by nearly 3:1. Also notable is that even with 2 days of strong selling the S&P failed to close at a 10-day low. I ran these observations through the wayback machine tonight and came up with the following results:



Instances are a bit smaller than I typically like but the stats are impressive enough for me to take the study into consideration.

A few additional bits of information about the study:
1) 12 of 14 instances (85.7%) closed above the entry day close within the first week.
2) If you look out 7 trading days that improves to 13 of 14 (92.9%).
3) The average maximum gain over the next 12 days is 5.2%. The average maximum drawdown is 2.2%.
4) After 7-12 days the edge dissipates. The setup is only short-term in nature.
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2 comments:

  1. Johan LindénAugust 20, 2008 at 3:09 AM

    Hi!

    How can the avg win and avg loss be higher than the avg DD and avg maximum win in 12 days?

    That's what the text says if you compare it to the table.

    Thanks!

    ReplyDelete
  2. Rob HannaAugust 20, 2008 at 7:19 AM

    Max Gain and Drawdown stats include both winners and losers. There may be trades where "0" is included in the average for these stats.

    Avg win just looks at winning trades. Avg loss just looks at losing trades.

    Rob

    ReplyDelete