Facts About Chasing Market Momentum

Since the start of '08, the S&P has declined by 43%. Yet, if you only held the market on days following a down day, you would have earned a cumulative return of 36%. In contrast, if you only held the market on days following an up day, the cumulative return would have been -58%. In terms of daily (close-to-close) returns, the average return since the start of '08 following down days has been 0.28% while the average return following up days has been -0.62%.

Since Oct, this pattern has become even more pronounced: the average daily return following down days has been 0.24% compared to -1.06% following up days.

And despite the stabilization in equity markets over the past two months, the anomaly has only increased. Since Dec 1, the avg return following down days has been 1.15% compared to -1.24% following up days.

Hat tip reader BarelyProfitableTrader