Four Straight 1% Down Days: FOURtune Or FOURwarned?
Rare four straight 1% drops in the S&P 500 have mostly occurred at bottoms of some significance…with a few notable exceptions.
Our last several posts were focused on the historic “washout”-type readings emanating from the equity market the past few days. One further example of this was the occurrence of 4 consecutive down days of at least -1% in the S&P 500. This has been a rare event. In fact, since 1950, it is only the 8th time this has occurred.
Interestingly, of the 7 prior occurrences, all but one ended their streaks at 4. October 7, 2008 saw the streak continue for an incredible 3 more days. Another interesting observation, evident from the chart, is that the majority of the occurrences marked approximate lows of some significance. Witness:
5/11/1962: The S&P 500 bounced for 3 days before falling another 14% to new lows over the next month (see next entry).
6/14/1962:
The S&P 500 made marginal new lows over the following week that would stand ever since.
10/19/1987:
The S&P 500 bounced immediately before testing the low 6 weeks later – and never again since.
7/23/2002:
The S&P 500 bounced immediately for 1 month before testing the low 3 months later later (see next entry).
10/7/2002:
The S&P 500 made marginal new lows 2 days later that would hold for 6 years.
10/7/2008: The S&P 500 continued its 1% losing streak for 3 more days, dropping an additional 15%.
3/2/2009:
The S&P 500 continued to make new lows over the following week, marking the lows ever since.
8/25/2015: ?
As you can see, 5 of the 7 occurrences saw nearby lows in the S&P 500 that would hold for at least 6 years, allowing for some re-testing. All 5 of the events experienced their maximum drawdowns for years to come within the very first week. The 2 occurrences that did not establish significant lows, May 1962 and October 2008, each saw their maximum 6-month gain occur within the first week. They showed negative returns from 2 weeks to 6 months out.
Here are the results of these events:
So is there any delineating factor separating the 2 challenging events from the other 5? One thing that strikes us is that the May 1962 occurrence came just 13.75% off of the S&P 500′s 52-week high. It is difficult to form a major low without more of a drawdown than that – unless the market was in a “correction through time” sideways pattern. And it is difficult to make that case given this recent volatility. With the S&P 500 a mere 12.35% off of its 52-week high as of yesterday’s close, this is something that is probably relevant enough to keep in mind.
So what will it be, fourtune or fourwarned? We can never know four sure…but it is probably fourshadowing something big.
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The commentary included in this blog is provided for informational purposes only. It does not constitute a recommendation to invest in any specific investment product or service. Proper due diligence should be performed before investing in any investment vehicle. There is a risk of loss involved in all investments.
