Mind the gaps, redux

More on gaps, this time: NDX:TLT ratio gaps.

Dates Tested: All history of TLT to 1/24/06, 878 days

Test 1/binary: What is the performance of the NDX on days which the NDX:TLT ratio gaps up/down?

Long A. When NDX:TLT ratio gaps up AND NDX:TLT ratio > 10av @ open, then average return of NDX for that day is: 0.318%, annualized gain of 130%. 263 days, 160 up, 103 down (60%).

Long B. When NDX:TLT ratio gaps down AND NDX:TLT ratio > 10av @ open, then average return of NDX for that day is: 0.69%, annualized gain of 313% (buy the dip). 205 days, 148 up, 57 down (72% up days).

Down A. When NDX:TLT ratio gaps up AND NDX:TLT ratio < 10av @ open, then average return of NDX for that day is: -0.455%, annualized gain of -58% (sell rallies). 186 days, 66 up, 120 down (35% up days).

Down B. When NDX:TLT ratio gaps down AND NDX:TLT ratio < 10av @ open, then average return of NDX for that day is: -0.521%, annualized gain of -70% (sell rallies). 233 days, 74 up, 159 down (31% up days).

CONTROL. For all days: average change +0.028%, annualized rate +7.6%. 448 up days, 430 down days (51% up days).

Currently, the NDX:TLT ratio is below the 10d av. Beware of gaps down. Tag: simple timing methods.