Tuesday, December 27, 2005

Up Open, Down Day

Tuesday's market (SPY) opened up, but then closed down over 1% on the day. Since January, 2003 (N = 750), we've had 80 days in which SPY has fallen by 1% or more. The next day, the market is up on average by .24% (50 up, 30 down), which is stronger than the average gain of .05% (415 up, 335 down).

Interestingly, however, when the down day in SPY started the day by opening to the upside (N = 23), the average change the next day is -.02% (13 up, 10 down). When the down day opened down and stayed weak (N = 57), the average next day change is .35% (37 up, 20 down). It thus appears that days that start strong (such as Tuesday), but become weak are more likely to show followthrough weakness the next day that markets that are weak throughout the day. One way of looking at this is that markets opening up are trapping the buyers, while markets that open down trap the sellers the following day.


MikePascale said...

Hello--This is my first time reading this blog and I like what I see. Just wanted to ask if the "Monday" referred to twice in this post is supposed to be "Tuesday", as the U.S. market was closed Monday the 26th.
Thank you for your time and I look forward to more of your insights.


Brett Steenbarger, Ph.D. said...

My bad. Thanks for the note, Mike. I will change the entry and reorient myself to the holiday week... :-)