But What About Tomorrow?

[12/27/05] Looking in Zweig's Winning On Wall Street (page 159), "if the market does not do what it's supposed to do prior to the holidays (or immediately after Thanksgiving and Christmans), then that in itself is a negative sign and increases the probability that stocks will fall in the short run. Thus, the general trading strategy is to observe prices during the pre-holiday period, and if, at the close of the day, the market is unchanged or down -- defying the normal tendency -- then one should sell short the market for the day after the holiday."

So by this rule, one should have shorted today. And should short tomorrow. It would have worked out for today because the market was down. In fact, "The Standard & Poor's 500 Index, after rallying in early trading, dropped 12.12, or 1 percent, to 1256.54, its worst performance for the first trading day after Christmas since 1987." The Dow lost 105 to 10778. The Nasdaq lost 23 to 2227. What happened on the next day in 1987? The S&P dropped from 245.57 to 244.59. The Dow dropped from 1942.97 to 1926.89. The Nasdaq dropped from 325.60 to 325.50. However the day after that was positive.

So based on 1987, expect the market to be mildly down tomorrow, but the bulk of the move was today. In fact, based on 1987, one might look to buy tomorrow since the day after was positive. And 1988 was positive. The only slight flaw to this discussion is that this ain't 1987. Who really knows?

Chart of Dow Jones Industrial Average 1987-1989

[1/1/06] So what happened? Instead of going down Wednesday, the market finished barely positive. So while the Tuesday prediction was correct, the Wednesday prediction was barely incorrect. The market was down on Friday, normally an up day. So Zweig would say to short the market Monday (is it open Monday?)

[1/3/06] The market was closed Monday. And was up big today on the opening day of the year. In other words, the Zweig indicator was wrong big-time.