Glaring about this study is the low number of trades. This speaks to the relatively unusual market environment. While the 5 instances were somewhat mixed over the short-term, performance once you got out 13 weeks was strongly positive. For those interested, the trigger dates were 12/6/74, 8/8/75, 8/14/98, 8/6/99, and 7/19/02. ’74 and ’02 basically marked the bottoms. The other instances did some wiggling around before moving smartly higher.
To try and include some more instances, I loosened the “% drop” requirement for the Nasdaq. Lowering it to 5% produced the following results:
Not nearly as positive at the steeper 9% decline, but still very good on a risk/reward basis when looking out 10-20 weeks.
Nothing here that appears to be immediately actionable on its own, but as long as the Nasdaq can hold on to its leadership spot, the market stands a pretty good chance of putting in some intermediate-term gains.