The gap down on Friday occurred in reaction to the release of the employment report. The employment report is typically released on the first Friday of the month, though in some cases such as this month it occurs on a different day. This weekend I spent a good amount of time going through the BLS website and programming in all the employment days from 1993-present.
I looked at Friday’s action a few different ways with regards to employment days. I found it was only the 10th time that the SPY has gapped down over 1% and failed to fill that opening gap. While I didn’t find the results significant, below I have listed the other 9 instances along with their 1-day returns.
These results seem to imply a mild inclination towards further selling the next day. Another way that I looked at employment day gaps was by using a 200ma filter and eliminating the 1% size requirement. Overall the results of doing this didn’t suggest much. I did find it interesting though that there have been three instances since the March 2009 bottom and all three instances were followed by further declines ranging from 2.4% to 4.3% during the course of the following week. Those three instances occurred on 7/2/09, 8/6/10, and 6/3/11.
I don’t believe either of these employment day studies is worth heavy consideration. My main take away is that the reaction to the employment report is not necessarily an overreaction. As the employment day results showed there does not appear to be an inclination for an immediate reversal. In fact, downside follow-through may be more likely.
Employment day seasonalities aren’t typically as pronounced as Fed Day seasonalities, but they can be worth examining on occasion. Therefore I went ahead and incorporated the employment day code into the QE Tradestation Indicators & Functions Package. This way package purchasers or Quantifiable Edges subscribers may explore employment days further on their own. (Those who previously purchased the package may download this updated version at no additional charge.)