NASDAQ and S&P 500 Performance: After a Big Move

It turns out my Trading Markets article was more topical for today's trade than I could have planned...Thanks for the many positive comments I received on the piece.

On the heels of today's weakness in the NASDAQ 100 (QQQQ), I decided to look at what happens in the S&P 500 following one-day moves in the NASDAQ.

Since March, 2003 (N = 785), when we've had a one-day rise in QQQQ of 1% or more (N = 141), SPY has averaged a gain of .02% (72 up, 69 down) over the next two days. That is weaker than the average two-day change of .17% (426 up, 359 down) for the entire sample.

When--as today--we've had a 1% or greater drop in QQQQ in a single day (N = 123), the next two days in SPY average a gain of .26% (70 up, 53 down)--stronger than average.

We've thus tended to reverse large moves in QQQQ over the short-term, with subnormal returns in SPY after QQQQ rises and superior returns after QQQQ declines.

I'll have more on the Trading Psychology Weblog about the weakness in today's market.