What does the market do after it rises or fall consecutive days in a row?
Common wisdom states that a market that rallies a few days in a row is strong and a market that drops a few days in a row is weak.
Our test results show that there has been an edge on the long side when the market has declined multiple days in a row instead of rising multiple days in a row. The notion that short-term market strength follows through with more strength again appears to be wrong. In fact, the results show fairly conclusively that short-term weakness is followed by short-term strength and short-term strength is followed by short-term underperformance.
The above is from How Markets Really Work: Quantitative Guide to Stock Market Behavior by Larry Connors.
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