Earlier this morning, a reader posted a comment asking how the S&P 500 has performed on the day following a one-day move of at least 1.8%. So we went back to 1927 and found that there have been 792 of these large up days out of 19,967 total trading days. The average next-day change following a one-day move of 1.8% or greater is 0.16% versus an average one-day change of all 19,967 trading days of 0.03%. However, the S&P has been up less than 50% of the time after these 792 large up days, indicating that the up days have been more positive than the down days have been negative. We also found that the index has been more volatile following large one-day up moves. The average absolute next-day change following a move of 1.8% or greater is 1.28%, while the average absolute change of all days is 0.75%.
To narrow our range a bit, we also looked at days where the index was up between 1.8% and 2.2%. Of the 291 days we found, the index has still performed better the next day than the average day (0.08% vs 0.03%), but it has still been down the next day more than it has been up.
Looking back over just the past 10 years, the index still has showed better than average next-day returns while going up less than 50% of the time. The conclusion: While the odds are greater for today to be a down day, if we have an up day, it is likely to be a strong one.
In the chart below, we plotted the percent change of all days since 1927 (while there have been a few days that have been up or down more than 10%, we limited the range to -10% to +10% to better highlight that most days fall within the -1% to 1% range).
Terrific. Many thanks for your quick and useful work.
Eric
Posted by: Eric | July 13, 2007 at 09:02 AM