For today, 8.4.2011, I have $SPX down -4.78% and SPY down -4.68%. Let’s take a look at other times this has happened to see what happened next.
First, let’s examine previous dates when $SPX and SPY lost as much or more than today. I’ve also included the performance for the next day, two days later, and three days later. Keep in mind that SPY is tradeable, where $SPX is not. Also, SPY represents more recent history versus the long-term history of $SPX.
Below is the same information presented in a different format. I think it helps to see what happens after the crash day. Start with each blue bar (CrashDay) and work to the right. Notice the relationship between the blue and red bars. The large -20% loss is Black Monday.
Finally, lets look at what has happened in the intermediate term, after a crash day.
The results assume one bought the close of the crash day and sold X days later, at the close. All trades are averaged to produce the graph.
Bottom Line:
- The next day after the crash day has averaged a positive return of >1.0%
- The second day has also averaged a positive return of >1.0%
- The third day has averaged a negative return of -0.77% and -0.25% for SPY and $SPX, respectively.
History has shown that the next day after the crash day tends to be positive. However, there are a few examples of the next day losing almost as much (or more, on Black Monday) as the crash day. I know many folks are concerned about what will happen tomorrow.
I want to be deadly serious here. The market is in an extremely precarious and dangerous place. People are scared and may panic more tomorrow. 2008-2009 is no doubt still fresh in the minds of many traders.
The chance that a large, extended move upward will develop any time soon is very very slim. If you choose to hold here and wait for a bounce, understand that you may only get one shot at unloading longs or getting short. If you miss the opportunity, the market could easily slide another 5-10%. It may do that anyway, without a bounce. Over the next few days and weeks, expect another move down and a test of the lows. Volatility will stay very high.
If you are not disciplined and in control of your emotions, this market is going to eat you alive. You must know what you are looking for and you must know what you will do when you see it happening.
I’m looking forward to these results. Thanks.
There they are. Questions/comments are welcome.
Damn…I can’t believe how many -4+% days there were in ’08-’09…with half (7/14) followed by equally insane gains the next day. Incredible to watch, but, IMO, extremely difficult to trade.
Great stuff the past week or so. Thanks.
Crazy stuff, eh? A little scary, for sure.
Today was a cakewalk compared to 87′ ….
tomorrow might BE ’87.
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Dow futes down 24, S&P dwn 2 and gold up $6
Yeah, I’m a little worried that everyone, almost at once, has realized we have no leadership in our gov’t. We are a rudderless ship. Once that realization hits, its easy to see a Black Friday event take place where everyone just decides to throw their hands up at once.
The algo/math computer stuff you do is very impressive. If I were a much younger man, I might try to learn some of it. But as I’m not, I’ll just enjoy it whilst I sip some more scotch.
Lucky guy. Sipping scotch sounds delicious right now. A little Laphroigh, perhaps?
I would be glad to help you learn how to do it if you decide you want to know.
Thanks Wood
No problem Mr. Thaler. Does Earl go into the 80s today?
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