What is Turnaround Tuesday? Is it a Wall Street cliché, media company selling headline, or verifiable trading edge? Maybe all of the above, depending on its usage.
But it has also been a simple trading edge over at least the past 15 plus years or so. Below you will see how the equity indexes perform on Tuesdays.
The idea is that the market tends to reverse a Monday selloff or down day with a strong rally on Tuesday hence the name “Turnaround Tuesday”. If this is the case then we can test this idea and add a simple edge to our arsenal.
First, let’s define our “Turnaround”. If Monday’s Close is below Monday’s open then Tuesday should – based on our theory – show positive performance across the stock indexes. On the other hand, Tuesdays following a neutral or positive Monday (close > open) should fare only about randomly or without a strong trading edge.
In the charts below, you can see equity curves for Tuesday trading across the major stock indexes. The first chart follows an up Monday, while the second chart follows a down Monday – or our “Turnaround Tuesday” performance. The blue line represents the S&P 500 futures since 2002.
Sometimes all one needs is a handful of simple, time-tested rules like this.