Thursday’s post examined what happened after SPY was down two days in a row, losing more than 1.5% each day. History showed that the third day saw SPY bounce more than 70% of the time. Instead of bouncing, SPY closed down on the third day. What can we expect going forward?
On Friday, SPY closed down slightly, losing roughly 0.1%. Let’s look at what happen when the bounce fails to materialize on the third day.
Buy SPY at the close if:
- 2 days ago SPY closed down more than 1.49%
- 1 day ago SPY closed down more than 1.49%
- Today, SPY closed lower than yesterday’s close.
- Sell X days at the close.
- No commissions or slippage included.
- All SPY History used.
Despite a failed bounce on the third day, slightly more than 50% of trades bounced on the 4th day.
Be careful with the average returns as presented. One trade gained more than 14.5%, and it has skewed the returns. View the graph below to see the trade.
Trade By Trade Results:
Date/time shows the date the setup was completed and the buy was made.
Each day listed does not show a cumulative return starting from purchase. Instead it shows what happened on that particular day.
Again, we must be careful looking at the average returns in the first chart because we see in the graph above a 14.52% return, which is an outlier. If we remove that particular trade, the next day return drops to an average of 0.36%.
Without the outlier trade, results are not impressive. With the percentage of winning trades barely above 50%, I’m not putting much faith in a large bounce on Monday. Still, the conditions are such that we could see a large bounce.
Perhaps the major highlight of the trade by trade results is the volatility. Look how many days have returns of greater than 1%!
It looks as if the volatility beatings will continue until moral improves.