Days in a Row

What does the market do after it rises or fall consecutive days in a row?

Common wisdom states that a market that rallies a few days in a row is strong and a market that drops a few days in a row is weak.

Our test results show that there has been an edge on the long side when the market has declined multiple days in a row instead of rising multiple days in a row. The notion that short-term market strength follows through with more strength again appears to be wrong. In fact, the results show fairly conclusively that short-term weakness is followed by short-term strength and short-term strength is followed by short-term underperformance.

The above is from How Markets Really Work: A Quantitative Guide to Stock Market Behavior by Larry Connors, founder and chairman of TradingMarkets, home of PowerRatings, and Connors Group, developers of The Machine.

To learn more about PowerRatings, click here. For The Machine, click here. And to get your copy of the new, updated edition of How Markets Really Work, click the link below.

How Markets Really Work: Quantitative Guide to Stock Market Behavior (Bloomberg Financial)