Market bottoms after 90% upside days

FYI- After the big market advance on August 9th the NYSE put in what is referred to as a 90% upside volume day, this action in breadth is indicative of a major market bottom, especially when it occurs after a series of 90% downside volume days, which it has. If the market stays strong today we may get another 90% upside volume day. Here is a link to watch the days volume breadth.

To calculate the days Upside percentage volume simply divide the total upside volume by the total volume of the day, the yahoo link does this calculation for you.

According to Paul Desmond of Lowry’s Reports Inc. “These two events – panic selling (one or more 90% Downside Days) and panic buying (a 90% Upside Day, or on rare occasions, two back-to back 80% Upside Days) – produce very powerful probabilities that a major trend reversal has begun, and that the market’s Sweet Spot is ready to be savored.” You can read the full details of Paul’s, Charles H. Dow Award winning research paper “ IDENTIFYING BEAR MARKET BOTTOMS AND NEW BULL MARKETS “

Below is a table that shows the results of buying the S&P on the day after a 90% upside volume day that was preceded by a 90% downside volume day the day before or 2 days before. The exit was a time based 50 trade day exit. The average 50 day return was 2.95% , as a comparison the average 50 day return for the S&P on all other days was 1.3%. The Paul Desmond paper was published in 2002 so I also broke the average 50 day return for before(2.12%) and after( 4.32%) the 2002 date that the paper was published.

** Note- this table does not have all the occurrences that are cited in the Paul Desmond research paper because I used a more strict definition of entry criteria, which was to buy only when a 90% upside day occurs after a prior 90% downside day on the day before or 2 days before.

Trade with the odds in your favor, details here.

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