Was Monday's Big Sell-Off a Bullish Indicator?

If past is precedent, Monday's massive sell-off could actually be bullish for the S&P 500 Index (SPX)

Karee Venema

Jun 30, 2015 at 9:44 AM

The market took a beating on Monday, with the S&P 500 Index (SPX) shedding 2.1%. According to Schaeffer's Senior Quantitative Analyst Rocky White, the SPX has notched a single-day deficit of 2% or more only nine other times going back to 2012. While the next-day returns were mixed -- ranging from a loss of 1.2% in November 2012 and October 2014 to a gain of 1.4% in April 2013, the one-month returns were actually quite bullish. In fact, looking out one month past this rare occurrence, the S&P 500 was positive each of the previous nine times.

150630spx1

Widening the scope to compare this to anytime returns for the S&P 500 Index echoes the idea that Monday's massive sell-off could be positive for the benchmark down the road. While the SPX averages a next-day anytime return of 0.1% versus a next-day loss of 0.1% following a 2% plunge, the rest of the time frames favor the latter. In fact, the SPX averages a one-month return of 4.8% following a 2% drop, and is positive 100% of the time. The one-month anytime returns for the SPX are a slimmer 1.2%, and the index is positive just 69% of the time. Today, the S&P 500 is paring a portion of yesterday's big losses in early trading, on speculation of a last-minute Greek debt deal.

150630spx2

Follow @Schaeffers

Minimize Risk While Maximizing Profits

There is no options strategy like this one, which consistently minimizes risk while maintaining maximum profits. Perfect for traders looking for ways to control risk, reduce losses, and increase the likelihood of success when trading calls and puts. The Schaeffer’s team has over 41 years of options trading success targeting +100% gains on every trade. Rest assured your losses are effectively limited to your initial cost at the time of making your move! Don't waste another second... join us right now before the next trade is released!