More on Turnaround Tuesdays

18Dec12

This is a follow up to NAS Trading’s article re: Turnaround Tuesdays, in which NAS shows that historically the market has tended to turn around on Tuesday/Wednesday when Monday closed in the bottom 20% of the previous 3 days’ range (hat tip: TWS).

A nice graphic from NAS to illustrate:

20121218.01

NAS’s article shows stats assuming we bought S&P 500 futures at Tuesday’s open and sold at Wednesday’s close.

Below I’ve run the same test assuming instead we (a) traded the ETF SPY, and (b) bought at Monday’s close rather than Tuesday’s open (to capture the usually bullish overnight session).

I’ve shown stats for not just Tuesday-Wednesday, but all other two day combinations as well, following short-term weakness (closing in the bottom 20% of the 3-day high/low range) since 02/1993.

20121218.02

We’re dealing with a relatively small number of observations (about 19 per year), so take these results with a hefty dose of skepticism, but the Tuesday/Wednesday following Monday weakness has been stronger than any other pair of days, and much stronger than the average 2-day period.

How consistent has this observation been?

Below I’ve shown how a hypothetical trader would have performed (frictionless) trading each of the 2-day combinations shown above. Mon-Tue is in blue, Tue-Wed in dark red, and Wed-Thu in light red, since 02/1993.

20121218.03
[logarithmically-scaled, growth of $1, frictionless]

Note that the Tuesday/Wednesday turnaround trade hasn’t been very useful since late 2009.

Also note that since then, Monday/Tuesday has instead been the most successful turnaround days. Of course, now we’re talking about a really small number of observations, so let’s not draw too sweeping a conclusion.

Finally, what point in the turnaround Tuesday/Wednesday period is the most bullish (daytime or overnight)?

Below I’ve broken out each daytime/overnight session from Monday’s close through Wednesday’s close. “O” represents that day’s open, and “C” that day’s close.

20121218.04

Monday’s overnight and Tuesday’s daytime sessions have been particularly bullish, with returns trailing off in the 24 hours following.

Summary

Historically, Monday’s close through Wednesday’s close has been the most bullish 2-day period following short-term weakness.

Monday’s close through Tuesday’s close has been especially bullish.

But that observation has waned in recent years and may not be useful moving forward. Continue to monitor.

Happy Trading,
ms

Geek note: for simplicity’s sake, in explaining this analysis I’ve assumed that the market was open every day of the week. Of course this isn’t always the case, and these numbers actually assume that the day before (after) the “turnaround day” was the previous (next) trading day. So for example, the day before (after) Tuesday could sometimes be Friday (Thursday).

. . . . .

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One Response to “More on Turnaround Tuesdays”


  1. 1 Tuesday links: the high cost of maps - Abnormal Returns | Abnormal Returns

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