The last trading week of the month started just like the previous one ended – with a bearish tone. As such, the S&P 500 made a new low for the year, trading well into bear market territory.
Investing in the stock market is typically for the medium and long-term horizon. Most investors use the periods when the market declines to accumulate more of their favorite stocks or to add new, attractive names to their portfolios.
Both short and long-term investors are in the search for a market bottom. One of the biases in the financial markets is the so-called turnaround Tuesday effect.
Biases are just that – biases, and in trading, they are strategies that traders observed that they work from time to time. However, research suggests that the investor will not gain a competitive advantage from such biases because if an opportunity existed, the market would have arbitraged it away quickly.
After all, markets are efficient, so they say.
What is turnaround Tuesday?
Throughout time, it has been observed that Tuesday is often positive for the stock market. To many, Tuesday is the perfect day for a reversal, but the bulk of the gains should come before the US opening.
However, being a turnaround, the market will pick up strength in the period to follow.
Are the conditions set for turnaround Tuesday?
One of the conditions is that stocks should be cratering for a few days in a row. They are.
Another is that on Monday at the close, traders should accumulate, and the effect would be seen between 2pm on Monday to the open on Tuesday. Both conditions are in place for a turnaround Tuesday.
However, before getting too excited, remember that turnaround Tuesday is just a market bias. A reversal may or may not be in the cards, and only one thing is sure for now – that the market made a new low for the year.