Gapping Down On A Monday

Posted by barkand on July 23, 2012 under Historical data, Seasonality | Be the First to Comment

Global stock markets are looking quite bleak today. European markets are getting whacked for losses more than 2% and U.S. futures are only slightly better. But there is a ray of sunshine coming through the clouds.

We checked the numbers for the last 10 years for other times when SPY, the popular ETF of the S&P 500,  gapped lower by more than a half-percent on a Monday. By our count, it has happened 71 times.

A strategy of buying the open today and then selling at the close on Friday produces an average gain of 0.98%. Not bad at all. Unfortunately, it makes a big difference where the market is relative to an intermediate-term trendline. When the market is already below its 50-day moving average and then gaps lower on Monday, this strategy gives us a 1.57% return for the week. But in cases where we are above the 50-day average, as we are now, we end up with only 0.38%.