Monday, November 2, 2009

Do Very Bad Fridays Set Up Crash Mondays?

Many traders who are aware of the history of the ’87 crash may often think after a bad Friday, “Will this get substantially worse on Monday? Are we setting up for a crash like ’87?” It’s an interesting question. Was 1987 an anomaly or does a really bad Friday often carry through into the next week? Below I looked at all Fridays since 1960 that closed down at least 2.5%.

The “Average Trade” column on the far right is skewed thanks to the ’87 crash which saw the market drop 20% on Monday. It appears in the almost all of the cases that the market was set up for a bounce based on Friday’s action rather than a crash. Of course while the last week has been bad, the market does remains in a long-term uptrend. I decided to filter the above results again to examine the bad Friday’s that appeared in long-term uptrends.

Instances are low here, but for the short-term they really couldn’t be more bullish. Again they also suggest the bounce should basically come immediately.


Mark Wolfinger said...

The real question is: should investors have gone extra long on Friday?

Even with this data, I believe most would fear a Monday morning debacle, and would not have played - preferring to get extra long during today's (now imaginary) decline at the opening.

jgpietsch said...

Rob, how has the old Friday-Monday momentum follow through trade fared recently? Best, Jeff

Rob Hanna said...


That edge is more pronounced in downtrends.