Chicago Mercantile Exchange Nasdaq 100 futures hit its temporary limit of down 100 on Thursday, the first time such a trigger has been hit in several years. A late-day rally helped pull the futures nearly 25 points off the low though it was still down 3.5% on the day, the second "very big" down day in a row. The move sent the Nasdaq below its 20-day low and its lower Bollinger Band. Such weakness, particularly back-to-back very large daily declines are unprecedented in the fourth quarter. Are these signs the worst is yet to come?
Q: What happens when the Nasdaq 100 futures experience a very big down day in the Fourth Quarter?
A: Wednesday was the twelfth occurrence of this making Thursday, "lucky 13.” Looking out six days, one finds that all the previous instances have rallied by an average of 4.23% with a standard deviation of only 2.56%. This ratio produces a Sharpe of +1.65 and a t-stat of 2.89, tested at a 2% return level, both outstanding numbers.
If you would like to see more details of this historical edge, go to www.markethistory.com
Jason Thompson is a Chicago-based speculator focusing on electronically traded derivatives and their underlying instruments.
