The apparent Lehman Brothers (LEH) bankruptcy and the potential Merrill Lynch (MER) merger with Bank of America (BAC) has the S&P and NASDAQ futures down by about 2% this evening.
When SPY has gaped down by 1.5% or more it has been a significant buy opportunity over the last 10 years. The charts above summarize the results for the close the day of purchase and one, two, and five days after purchase.
For a 1.5% gap down, buying the open and holding to the close of same day returns an average 1.1%. This results improves to a return of 3.0% after one week. A 2% gap down shows even better results. Buying the open and holding to the close of the same day returns an average of 2.4%. This result improves to a return of 4.1% after one week. Also note that the two trade instances occurring earlier this year did exceptionally well.
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