By Jason Zweig
2:30 pm ET June 4, 2013
We don’t normally root for the stock market to go down on a given day, but we are today.
If the Dow Jones Industrial Average closes at a loss today, it will finally break the streak of 20 consecutive Tuesdays on which the market went up – and we can’t wait. For weeks, investors have been treated to the spectacle of market strategists trying to “explain” why the market has kept going up on the second day of the trading week.
Frankly, we’ve had it with this nonsense. There is only one explanation: randomness. Repeated outcomes, or streaks, are much more common in random systems than people think – and, while the stock market isn’t perfectly random, it’s pretty close.
From Jeffrey Yale Rubin at Birinyi Associates comes this list of the greatest number of consecutive days on which the Dow went up (and down). The list starts in the year 1900:
|Day||Consecutive positive closes||Day the streak ended|
|Day||Consecutive negative closes||Day the streak ended|
As you can see, while 20 days in a row is a longer streak than the market has seen, streaks of closes in the same direction on a given day of the week are common. Just play with a good, online coin-flip generator for a few minutes and you’ll see that these outcomes aren’t surprising; they are to be expected in a large dataset like daily stock returns.
People have been calling these up days “Turnaround Tuesdays.” We think they should be called “Booby Tuesdays,” because anyone who believes there’s any predictive power in them is foolish. And we can’t wait to say good riddance to them.
Of course, as soon as we do have a down Tuesday, market analysts will just move on to detecting patterns in some other kind of random variation – but at least we’ll get some relief from this one.
Source: WSJ.com, Total Return blog