An earlier post we did on 300 point days garnered a lot of commentary. Incorporating the feedback from the comments section, we analyzed the performance of the S&P 500 following big percentage gains. Since not everyone agrees with the standard definition of a bull and bear market (gains or losses of 20% or more), instead of analyzing when these big days are more likely to occur, we calculated what the average performance of the market was following all big up days. After all, all we really care about is where the market is going.
In the table below we show the average performance of the S&P 500 following one-day gains of more than 2%, 3%, 4%, and 5% since 1945. The 2% category includes all gains of 3%, 4%, and 5% etc. In the bottom row, we also calculated the average performance of the S&P 500 following all days since 1945. As shown in the table, the average return following big days has exceeded the average overall return in every scenario except one (the week following 5% days). While we won't go as far as to say that big days are a clear sign of a strong market going forward, based on these parameters, we find it hard to make the argument that they are bear market indicators.
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Good post!
Would it be possile to show a chart of the S&P500 with the 3%+ days, say over the last 20 years?
Thank you
Posted by: Bullion | August 07, 2008 at 03:03 PM
goood stuff, like the JNJ new high too. their size wipes out all idiosyncratic risk and their EPS has accelerated last two quarters
Posted by: dan | August 07, 2008 at 03:28 PM
I'm surprised by that result. I guess the trend has changed recently, because long-term buys after big up days in *this decade* (2000-2002, 2007-) would have been disastrous.
Posted by: Jody Wilson | August 08, 2008 at 11:08 AM