Jul

18

In the 2010 Stock Trader's Almanac on pg. 52, there is an article entitled "Take Advantage of Down Friday/Down Monday Warning".

The gist of the article is that because of the importance of Friday and Monday as trading days a down Friday followed by a down Monday is Bearish.

It seems logical and they printed the data to "substantiate" this conclusion. Their table of data indicates the market is down anywhere from 18 to 54 days later.

I wanted some more immediate and more definite results that I might use, so I tested where is the market 5 days after a Down Friday/Down Monday for the years Feb. 1993 to July 2010 .To my surprise I found that on average the market is not down but up 5 days later and this occurred approximately 60% of the time.
I tested it further for 10, 15, 20, 25, 30, 35 days after a Down Friday/Down Monday.

With the exception of 25 days later, the market was up all those other days.

The market was slightly down on the 25th day but was up again, slightly 30 & 35 days later.

I have not broken up the test into smaller time segments to check the hypothesis further because I was truly disappointed.

Bruno Ombreux comments:

Just the numbers 18 and 54 are suspect. They smell of cherry-picking.

But there is an even bigger flaw. It is that it doesn't make any sense. One could forgive people not knowing about multiple hypothesis issues. They require education. But throwing away common sense as they do, is a different matter.

Why would something that happened today impact the market 18 to 54 days later? And not in between? When we all know that if there are dependencies they are very weak and vanishing with the passage of time?

 


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