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Dow Jones Industiral Average - Knocktober 
DJIA.AMonday, November 2, 2009
By Jay Pasch
October closed its books with a day of hard knocks for the bulls as the Dow Jones Industrial Average (DJIA) saw a Very Big decline of 2.5%, while the S&P 500 Index (SPX) followed suit with a Very Big 2.8% decline of its own. What does history tell us about such moves? When we review the magnitude of Friday's decline with respect to the month-end trade date, we see a propensity for markets to recover as we ask:
Q: What is the historical performance for the Dow Jones Industrial average after both the Dow and the S&P 500 Index record Very Big declines on the last day of the month?
A: According to the 13 previous occurrences of this event, EventEdge indicates that DJIA.A has shown a very strong bullish edge that peaks 39 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Friday, 30 October 2009) is Monday, 28 December 2009. DJIA.A rallies in 92% of the cases (12 of 13) by an average of 6.6% relative to the close on the event date. The average of the 1 decline is -1.3%. The overall return of the 13 cases is 6.0%, which, based on the close of DJIA.A on the event date (9712.73), provides a target price of 10295.49.
To view and modify the event parameters defining this study, click here2 to launch the EventEdge® tool.
Mr. Jay Pasch3 is a private futures and equities trader based in Minnesota. He may hold positions in the instruments mentioned in his trading ideas.
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Let variable values:
@ = DJIA_ACT
theEvent = IF
1 value percent_move of @ is less than
(30 day average of 1 value percent_move of @ -
(2 * 30 day std_dev of 1 value percent_move of @
)
)
AND
Date is last day of the month
AND
1 value percent_move of SPX is less than
(30 day average of 1 value percent_move of SPX -
(2 * 30 day std_dev of 1 value percent_move of SPX
)
)
THEN 1
ENDIF
Date Day t+38 t+39 t+40 t+41 t+45
03/31/1939 Fri 2.8 3.2 4.5 4.8 4.9
05/31/1949 Tue 4.0 4.8 4.8 4.7 5.2
03/31/1953 Tue -0.9 -1.3 -2.1 -3.0 -3.7
08/31/1953 Mon 5.1 4.6 4.9 5.8 6.8
08/31/1954 Tue 6.1 6.1 5.9 5.6 9.3
02/28/1963 Thu 8.3 8.4 8.2 7.9 8.3
05/31/1967 Wed 5.7 5.9 5.9 5.7 8.1
06/30/1980 Mon 10.4 10.2 9.8 8.7 9.8
04/30/1986 Wed 5.1 5.7 5.4 5.7 6.6
03/31/1997 Mon 10.2 11.6 12.2 11.8 11.1
08/31/1998 Mon 12.1 11.8 11.0 11.0 15.5
11/30/1998 Mon 1.0 2.3 0.9 1.8 2.7
02/29/2008 Fri 4.7 5.1 4.9 4.6 5.7
10/30/2009 Fri NaN NaN NaN NaN NaN
Avg 5.7 6.0 5.9 5.8 7.0
AvgPos 6.3 6.6 6.5 6.5 7.8
AvgNeg -0.9 -1.3 -2.1 -3.0 -3.7
PctPos 92.3 92.3 92.3 92.3 92.3
PctNeg 7.7 7.7 7.7 7.7 7.7
Maximum 12.1 11.8 12.2 11.8 15.5
Minimum -0.9 -1.3 -2.1 -3.0 -3.7
StdDev 3.8 3.7 3.9 3.8 4.5
ZStat 1.5 1.6 1.5 1.5 1.5
Variance 14.1 13.9 15.0 14.4 20.5
14 Occurrences |
Comments:
Web Address of this trading idea:
Links:
2 http://www.markethistory.com/content/events/chart.html?ticker=DJIA&events=DownXL0,MonthEnd0,SPXDownXL0
3 http://www.markethistory.com/staff/detail.html?s=pasch