Interesting Article from Jan which plays into our DIP THEORY!

If a Stock Drops 5 Days in a Row, Should You Buy It?
By Ashton Dorkins & Larry Connors
TradingMarkets.comJanuary 26, 2007 10:00 AM ET

What happens to stocks that close up, or down, consecutive days? Most people would say stocks that close up consecutive days are strong, and stocks that close down consecutive days are weak. This type of thinking makes perfect sense. After all, it feels good when a stock you own keeps going up, and bad when a stock you own keeps going down. Therefore it's only natural to think strong stocks go up and weak stocks go down -- therefore you should buy strong stocks and sell weak stocks.

However, our research shows there is an edge in stocks that have declined three or more consecutive days.

Consecutive Up/Down Days
We looked at over seven million trades from 1/1/95 to 6/30/06*. The table below shows the average percentage gain/loss for all stocks during our test period over a 1-day, 2-day, and 1-week (5-days) period. These numbers represent the benchmark which we use for comparisons.
We then looked at stocks that made exactly three consecutive up/down closes, all the way to stocks that made exactly seven consecutive up/down closes. Here's what we found:

Consecutive Up Days
Stocks that closed up exactly three consecutive days, on average, underperformed the benchmark 1-week later (+0.14%).
Stocks that closed up exactly four consecutive days, on average, underperformed the benchmark 1-week later (+0.02%).
Stocks that closed up exactly five consecutive days, on average, showed negative returns 1-week later (-0.11%).
Stocks that closed up exactly six consecutive days, on average, showed negative returns 1-week later (-0.30%).
Stocks that closed up exactly seven consecutive days, on average, showed negative returns 1-week later (-0.40%).

As you can see, the statistics show even greater underperformance each step of the way.
This research shows that traders should avoid buying stocks that make consecutive up days and aggressive traders may consider short selling these stocks.

Consecutive Down Days

Stocks that closed down exactly three consecutive days, on average, outperformed the benchmark 1-week later (+0.36%).
Stocks that closed down exactly four consecutive days, on average, outperformed the benchmark 1-week later (+0.54%).
Stocks that closed down exactly five consecutive days, on average, outperformed the benchmark 1-week later (+0.63%).
Stocks that closed down exactly six consecutive days, on average, outperformed the benchmark 1-week later (+0.82%).
Stocks that closed down exactly seven consecutive days, on average, outperformed the benchmark 1-week later (+1.06%).

In this case, the statistics show even greater out-performance each step of the way.
This research shows that traders should look to build strategies around stocks that make consecutive down days.