Does the market look bad enough to buy for a short term trade? The VIX is extended to the upside. The beaten down financials attempted a rally today. The unstoppable momentum stocks like AAPL, RIMM, PCU, BHP, and FXI have been stopped.
Is there a short term edge to buying after a decline? The SPY is down four days in a row today. That has only happened 103 times in the 19 year history of SPY. Buying SPY after it has been down four days in a row and holding for five days has returned 1.29% on average. The results for holding one, two, and five days are summarized in the table above.
In 2007, there have been two other instances of SPY being down four days in a row. Holding SPY for five days after 9/25 yielded 1.8%. However, holding SPY for five days after 2/26 resulted in a loss of 5.4%. So even though the bias is to the upside, caution is advised.
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