Consecutive Up or Down Days, NASDAQ 100 Edition

Just a short post today. Jack Damn has been tweeting about consecutive up/down days lately, which inspired me to go looking for a potential edge. The NASDAQ 100 has posted 6 consecutive up days as of yesterday’s close. Is this a signal of over-extension? Unfortunately there are very few instances of such a high number of consecutive up days, so it’s impossible to speak with certainty about any of the numbers. Let’s take a look at QQQ returns (including dividends) after X consecutive up or down days:

QQQ Returns

 

There’s no edge on the short side here if you’re looking for a mean reversion trade. Looking out over longer horizons, it seems like many consecutive up days tend to be followed by above-average returns. Another argument in favor of the idea that the bottom of the current pullback has been reached, but nothing really useful in terms of actual trading.

Finally, a look at the probability of positive returns following X consecutive up or down days:

QQQ Probability of positive returns

 

UPDATE: Here’s the spreadsheet.