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If This Isn't Turnaround Tuesday, the Bears Are in TroubleBy Jeff ClarkTuesday, November 17, 2009 Could today be turnaround Tuesday?
If you Google the phrase "Turnaround Tuesday," you'll find a surprising amount of evidence that stocks often bottom on Tuesdays after suffering extended moves lower. The script usually goes something like this...
* Stocks gradually decline for several days or weeks...
* Stocks suffer a decline on a Friday heading into the weekend...
* The decline continues on the following Monday...
* Stocks either begin to rally immediately on Tuesday, or they open lower and then turn around and close higher on the day.
Once this script plays out, stocks usually go on to rally for several weeks. In fact, this is exactly how the market bottomed in March.
But what about market tops? Can Turnaround Tuesdays signal a market peak and the beginning of a downturn? Surprisingly, you won't find much evidence on Google. All of the studies dealing with Turnaround Tuesdays were looking at market bottoms, not tops.
But it seems to me if the script works in one direction, it ought to work the other way, too.
And it does.
A recent history of stock-market peaks shows a pattern where stocks rally on Friday, hold or add to the gains on the following Monday, and then either decline immediately on Tuesday or rally a bit first then turn around and close lower on the day.
That's what happened when the market peaked in May 2008. It happened again at the peak last January. And while we haven't seen much of a correction during this current rally off the March lows, the temporary highs in September and October also occurred on Tuesdays – and were followed by 5%-7% moves lower.
That brings us to today...
Stocks are up strongly so far this month. They rallied hard on Friday and added to those gains yesterday. If this turns out to be Turnaround Tuesday, stocks will either rally early and then reverse and head lower or they'll start selling off at the opening bell. And they'll continue lower into the end of the month... or longer.
If the market doesn't reverse lower today, the bears are in real trouble. There's no such thing as "Turnaround Wednesday."
Best regards and good trading,
Jeff Clark
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