Friday, November 9, 2007

NASDAQ 100 Down 3 Days > 7%: What Happens Next?

As one might imagine, the longer the duration of sell offs like these, the higher the odds of a mean reversion. Here is an update of yesterday's post. As of the time of this writing, the NASDAQ 100 (QQQQ) has declined more than 7.25% over the last three days. This last occurred in August of 2002. Once again, I ran a quick scan back through 1998 to see what happens the next day when:

(a) The index is down three days in a row; and,
(b) The sum total is less than (more negative than) -7.25%.

Of the 52 instances, 36 were positive (69%) for a cumulative gain of 93% (average of 1.8%). The maximum next day gain was 10.8%, while the maximum loss was -9.9%. Pretty hairy edge, if you can call it that.

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