Wednesday, August 27, 2008

Weak Bounce Is Not Encouraging

After the market suffers a sharp drop as it did Monday, the size of the bounce the next day can tell you a lot. A strong bounce may lead to further upside. Weak bounces often roll right back over. I plugged a 1.75% drop and a next day recovery of less than ¼ of the drop into the Wayback Machine tonight. Results below:

I have nothing good to say about these numbers, so I won’t say much.

Notable but not included in the table is that 77% of all instances closed lower at some point in the next three days. The average max drawdown for all trades over the first three days was just over 2.0%.

1 comment:

Anonymous said...

As a cartoon enthusiast, I just thought I would tribute Rocky and Bullwinkle by clarifying that it was spelled "WABAC," though they pronounced it "wayback."

Keep up the excellent articles and studies Rob, they're great.