What Happens To SPY After Extreme Weak Day

After looking at what happen after a strong day, let's look at what happen after an extreme weak day.

An extreme weak day in this case is defined as a drop more than -2.28%. From 2000, there have been 58 occurrences such drop took place.

• Next Day: SPY average 0.57%, 24 (41.38%) down, 34 (58.62%) up. Down day with average of -1.74%, and up day with average of 2.20%.

• 3 Days later: SPY average 0.58%, 26 (44.83%) down, 32 (55.17%) up. Down days with average of -3.16%, and up days with average of 3.62%.

• 5 Days later: SPY average 0.51%, 28 (48.2%) down, 30 (51.72%) up. Down days with average of -4.1%, and up days with average of 4.82%.

• 10 Days later: SPY average 0.42%, 26 (44.83%) down, 32 (55.17%) up. Down days with average of -5.5% and up days with average of 5.23%.

From this simple test, it is very clear that farther weakness is not likely to follow extreme weakness even when stretched out to 10 day move. The observation holds true even in the drop lasted from 6/6/2008 to 4/20/2009. The day after extreme drop has average gain of 0.5% in the period, only when zooming out to 5 days or more the down trend is clear.