Miss Direction?

• Posted by Adam Warner
• on September 14th, 2009

So perhaps you have heard the Thursday Misdirection Urban Legend. The theory goes that whichever way the market moves on the Thursday the week before will lead to the opposite move on the Friday of expiration.

Well, we were up on Thursday, so should we expect some Red Shoots this Friday?

Long story short; Don’t bet the ranch on it.

I ran some numbers for my book, and the two days have about a -.10 correlation. It’s not much, but I did look at other nearby days in the cycle relative to expiration day, and it was the strongest negative relationship to expiration fwiw. But that being said, it’s far from an exceptional number. The Wednesday 2.5 weeks before expiration has a -.218 correlation to the day before it, so we’d be over twice as informed referring to the “Mid Cycle Tuesday Misdirection Day”.

There’s also really no relationship between Thursday’s move and the net move between the next day (last Friday) and expiration. So if you do nothing, then short this Thursday’s close, I imagine you are a very modest favorite.

 

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