Monday, October 22, 2012

How the Market has Historically Reacted to Very Bad Fridays

In the April 19, 2010 blog I showed a compelling study that examined large drops on Fridays.  Both the Crash of ’29 and the Crash of ’87 happened on Monday.  The Crash of ’87 is still remembered by many traders that are active today.  There was a strong selloff on Friday and then all hell broke loose on Monday.  But since then strong Friday selloffs have commonly been followed by bounces on Mondays.  Perhaps this is due to the fact that fear of a crash causes what might otherwise be an ordinary selloff to become exaggerated and overdone on Fridays.  Or perhaps it is just that people don’t want to hold over the weekend.  Whatever the reason, the tendency to bounce has been very strong.  I’ve updated that 4/19/10 study below.

The numbers here are all very impressive and suggest a strong bullish bias.

1 comment:

ATrader said...

Nice post. Thanks. Your posts as usual contain good ideas. Recently I was exploring the price action of market under different regimes subsequent to a strong sell off day in market. My results independent of the weekday show similar behavior. After you post I am planning to check if Friday's provide additional edge. Thanks.

Following is one of the links for the study I mentioned above: