The selloff from Monday followed through on Tuesday. For the second day in a row declining stocks outpaced advancing stocks by nearly 3:1. Also notable is that even with 2 days of strong selling the S&P failed to close at a 10-day low. I ran these observations through the wayback machine tonight and came up with the following results:
Instances are a bit smaller than I typically like but the stats are impressive enough for me to take the study into consideration.
A few additional bits of information about the study:
1) 12 of 14 instances (85.7%) closed above the entry day close within the first week.
2) If you look out 7 trading days that improves to 13 of 14 (92.9%).
3) The average maximum gain over the next 12 days is 5.2%. The average maximum drawdown is 2.2%.
4) After 7-12 days the edge dissipates. The setup is only short-term in nature.