Strong Selling Yesterday May Market Bottom

by Paul Costa

Yesterday was a grinder lower.  The bears just wore the bulls down slowly grinding the market slower.  All the volume was to the sell side, which created a 90% Down day.  This is when 90% of the total market volume is down. This typically marks a sort of capitulation and a overselling, where the market rebounds after it.   Here is a un-updated list of using the 90% Strategy that discuss the returns in greater detail.  Below is the last 5 90% down days, that occurred this year.

Below is a chart showing the last 90% down days.  Three of the last five times the market has gone on to rally the next couple of days.

Here is the P/L of the trading startegy of Buying on the close of the 90% day and selling on the close of the next day.

W-3
L-2
P/L- $448

Here is the P/L if you hold it for 5 days:

5 W
P/L = $1,663

The most important thing to watch for to see if this is marking a bottom is the follow through today.  If there is continued weakness in the market, look for more downside.  If the bulls can get a bid here, there are strong odds the market will rally.

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