Broad Weakness: What Comes Next?

Friday showed unusually broad weakness in the market, with 2662 NYSE issues trading down for the day and only 625 advancing. Since March, 2003 (N = 780), when we've had more than 2400 issues declining in a day (N = 38), the next day has averaged 1561 advances and 1717 declines (versus 1697 and 1557 for the sample overall). We thus see some carryover of weakness the following day in the broad market.

Three days after the broad decline, however, the average price change in SPY is .47% (27 up, 11 down), much stronger than the average gain of .18% (457 up, 323 down) for the sample overall. This sets up a possible strategy for next week of exploiting near-term weakness for a reversal and bounce. More on this tonight in the Trading Psychology Weblog.