I have the futures down greater than 1% and it looks as if the weakness may actually hold through the night. It is possible that the market may gap down more than 1% on tomorrow’s open.
What happens after the market gaps down 1% or more?
Rules:
Buy the open on SPY if it gaps down 1% or more. Sell the close X days later. No commissions or slippage.
Additional factors:
- 1% Gap Down from 10 Day High
- 1% Gap Down and SPY last closed at a 10 day high.
- 1% Gap Down when the $SPX last closed above the 50 day simple moving average.
Results:
Caveats:
Buying a gap down greater than 1% had a nearly flat edge until the Bear Market of 2007-2009. During the Bear Market, buying a gap down simply did not work. This period of terrible performance skewed the results negatively.
Since 2010, buying a gap down of 1% or more has worked very well.
Based on these results, it is difficult to guess if the pattern that has dominated since 2010 will prevail. If the market does recover from any large gap down, it will likely be at least a week and likely two weeks before the market makes a new high.
That’s good info. Thanks.
Not extremely bullish though. Would be more so without the 2007-2009 data.
these posts are the coolest
Glad you enjoy them. I find them helpful myself, which is why I do them.
great post wood – thanks
Hey Wood, I was going to ask you to study what both VIX up and SPX up on the week means for the following week ( I guess now we know)
also just by eyeballing it, it looks like major gaps in the VIX usually get filled quickly