Some people we follow in Twitter who have been trading for a long time often talk about “Turnaround Tuesday” if Monday is a down day in the stock market. Below is the analysis that shows if this is a true anomaly or just another false meme.

We backtest the following strategy in SPY from 01/2007 to 10/02/2018:

If the return on Monday is negative and tomorrow is Tuesday we buy at the close and exit at the close of Tuesday. Commission is $0.01/share and equity is fully invested.

Below is the result of the backtest:

Some interesting observations arise from the above chart:

• Strategy has more than half of the buy and hold performance of SPY in test period
• Bulk of returns were generated from 01/2007 to 04/2009
• Risk-adjusted performance is high with MAR at 0.39 versus 0.16 for buy and hold

Below is a table of monthly returns:

The strategy worked well during the financial crisis bear market with a return of almost 29% and probably this is the reason it emerged as a trading rule.

It also worked well in 2011 despite the large correction with 6.8% return.

But what about the possibility of other days of the week being turnaround days? Below is a table that shows CAGR and MAR (CAGR/Max. drawdown) for each day of the week provided that the preceding day had negative return in the same test period as above:

It may be seen from the above table that the “Turnaround Tuesday” anomaly is significant when compared to the other days of the week.

Below is additional information for our blog subscribers.

If you found this article interesting, I invite you follow this blog via any of the methods below.

Subscribe via RSS or Email, or follow us on Twitter

If you have any questions or comments, happy to connect on Twitter: @mikeharrisNY

Charting and backtesting program: Amibroker

Disclaimer

Market signals from systematic strategies are offered in our premium Market Signals service. Stock signals are offered daily in our Premium Stocks report. For all subscription options click here.