Why Monday’s Selloff Could Lead To More Short-Term Selling

After closing at a new high on Thursday, selling was broad but not terribly deep on Monday as measured by the SPX. The study below, from the Quantifinder, examines these kind of situations.

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This type of broad, shallow selling will often lead to further SPX declines in the following days. Risks appear to far outweigh potential rewards when looking at metrics such as win/loss ratio and profit factor. The downside edge plays out quickly though, and has generally exhausted itself after the first couple of days.


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