The S&P 500 Index (SPX) Indicator That Could Spell Trouble

The S&P 500 Index (SPX) just saw its largest year-over-year decline since 2009

Aug 26, 2015 at 2:33 PM
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After yesterday's eyebrow-raising reversal left the equities market suddenly in the red, the S&P 500 Index (SPX) found itself staring at a year-over-year (YOY) deficit of 6.6%. This is the largest year-over-year decline the index has seen since July 28, 2009, according to Schaeffer's Quantitative Analyst Chris Prybal. Prybal also ran the numbers to see how the SPX tends to perform after this signal flashes, and the results are not all that encouraging. Here's what he found:


Clearly, these numbers don't provide much in the way of enthusiasm. It seems things get particularly tough after more than a month or so out from when the SPX falls 6% below its YOY breakeven mark. For instance, the index, on average, has fallen 1.2% going out 42 days from a signal. This is a far cry from the SPX's anytime return of 1.4% for the same range. Below is a gigantic -- and delightfully colorful -- chart displaying how the SPX has reacted following the days it hit at least negative 6% YOY dating back to 1972.  

Making this as simple as possible: green is good, red/yellow/orange, not so much. Unfortunately, the table consists of mostly the latter colors, suggesting a 6% YOY decline for the SPX could flash a bearish signal going forward.



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