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It\u2019s an old clich\u00e9 but the phenomenon known as Turnaround Tuesday \u2014 when markets rebound from a selloff at the start of the week \u2014 is an opportunity that shows up time and again in the data. The bad news is such recoveries don\u2019t guarantee a bottom has been reached<\/a>.<\/p>\n Investor<\/a> psychology during a rout tends to begin with jitters on Thursday, hedging on Friday and all-out selling on Monday, according to Brent Donnelly, veteran trader and president of trading analysis firm Spectra Markets. By Tuesday, the downdraft is primed for a reversal, he wrote in a note published Monday.<\/p>\n The numbers support the thesis. Prior to this week, the S&P 500 had fallen on a consecutive Thursday, Friday and Monday a total of 582 times and the subsequent Tuesday delivered an average gain of 0.2% \u2014 which works out to 50% on an annualized basis, according to data going back to 1928 compiled by Bloomberg macro strategist Cameron Crise.\u00a0<\/p>\n When losses exceeded 1% on each of the previous three sessions \u2014 as they did this past week \u2014 the Tuesday gain rises to an average 0.63%.<\/p>\n \u201cWe are setting up for a textbook Turnaround Tuesday,\u201d Donnelly wrote in his note. \u201cThings are so dramatically oversold, and Tuesday is such a bullish day of the week that I am looking for tactical fade trades,\u201d such as a long position in the Canadian dollar against the Swiss franc, he said.<\/p>\n On Monday, Japan\u2019s two key gauges had tumbled more than 12% as they sank into a bear market from their record highs hit in July. The selloff spread across global markets, with Europe\u2019s Stoxx 600 benchmark declining 2.2%. The S&P 500 Index sank 3%, its biggest one-day drop since September 2022. Wall Street\u2019s \u201cfear gauge\u201d \u2013 the VIX \u2013 at one point registered its largest spike in data going back to 1990.<\/p>\n Japan is\u00a0leading a recovery\u00a0on Tuesday,<\/a> with its key equity indexes rallying more than 9%, the most since October 2008. Futures contracts for the S&P 500 are up about 0.8% so far Tuesday, following losses over the prior three trading days.<\/p>\n Still, even a healthy Tuesday rebound in equities is unlikely to temper the broad unease growing across financial markets. Investors that buy and sell based on\u00a0quantitative measures<\/a>, such as volatility, have offloaded $130 billion of stock bets the past few weeks and that process may accelerate in the days and week ahead.<\/p>\n Investors hoping to catch the Tuesday upswing should be aware this may be only a short-term trade.<\/p>\n \u201cI wouldn\u2019t expect this to be a durable bounce,\u201d said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore. \u201cThere is likely to remain volatility into October, November. Any counter trend rally today and persisting for a few weeks would be something to trim risk into.\u201d<\/p>\n Ferres said Vantage Point bought Japanese stocks Monday as prices fell, but added \u201cthis is something more tactical for us.\u201d<\/p>\n At the heart of the decision to buy on Monday was his belief the selling was \u201cimpulsive, rapid, and emotional,\u201d and he regrets not purchasing more, he said.<\/p>\n \u201cThe magnitude of the selling was so large \u2014 the correction over three days was roughly equivalent to what we saw in the 1987 stock market crash,\u201d Ferres said. \u201cWith hindsight we should have bought a little bit more.\u201d<\/p>\n<\/div>\n\nVolatility Remains<\/h2>\n
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