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)

by Karee Venema

Published on Jun 30, 2015 at 9:44 AM
Updated on Jun 24, 2020 at 10:16 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.

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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.

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