In an older study in the Subscriber Letter I looked at bounces after SPX is strongly short-term oversold as measured by RSI(2). What I found in that letter was that lower-volume instances on the first day of the bounce have performed much better over the next few days than higher-volume bounces. I won’t rehash the whole study here, but I will show performance following higher volume bounces like Thursday.
As you can see, it appears that such bounces suggest a short-term downside edge.
One reason the blog has been slow this week is that I am preparing for my trip to Atlanta next week to speak at the MTA meeting there. If you’re in the Atlanta area and would like more info on my talk you may check out the link below. You don’t need to be an MTA member to attend, but you should consider joining.
http://www.mta.org/eweb/dynamicpage.aspx?webcode=atlanta
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