From Paul Desmond's paper (http://www.mta.org/pdf/2002DowAward.pdf):
"4. Impressive, big-volume 'snap-back' rallies lasting from two to seven days commonly follow quickly after 90% Downside Days, and can be very advantageous for nimble traders. But, as a general rule, longerterm investors should not be in a hurry to buy back into a market containing multiple 90% Downside Days, and should probably view snapback rallies as opportunities to move to a more defensive position.
...
6. In approximately half the cases in the past 69 years, the 90% Upside Day, or the back-to-back 80% Upside Days, which signaled a major market reversal, occurred within five trading days or less of the market low. There are, however, a few notable exceptions, such as January 2, 1975 or August 2, 1996. As a general rule, the longer it takes for buyers to enthusiastically rush in after the market low, the more investors should look for other confirmatory evidence of a market reversal." |
