Should You Fear the SPY 'Brexit' Bear Gap?

After Thursday's U.K. referendum vote came out in favor of a "Brexit" -- leading British Prime Minister David Cameron to resign -- global stocks are taking a serious hit. In the U.S., the SPDR S&P 500 ETF (SPY) -- the exchange-traded fund (ETF) that tracks the broad S&P 500 Index (SPX) -- is pointed 3.3% lower in electronic trading. Given the lofty pre-market move, Schaeffer's Senior Quantitative Analyst Rocky White ran the numbers to see what has historically happened after big SPY bear gaps at the open -- and what we might expect going forward.

For starters, the table below shows how the SPY has performed the rest of the day after an opening bear gap of 2% or more since 2010, compared to daily anytime returns. In the 15 previous instances over this time frame, the ETF dropped an additional 0.13%, on average, through the rest of the day, compared to an average anytime return of 0.03%. Additionally, the SPY has closed positive just 40% of the time following a bear gap at the open, versus 55.8% anytime.

And while it goes without saying, the SPY could be in for a more volatile day than usual. Specifically, the standard deviation for bear gap days is significantly higher, at 1.7%, compared to 0.8% anytime.

Looking at the longer-term results could ease bulls' concerns. While the following table tracks each individual bear gap day since 2010, the charts below this average the results for the SPY's rest-of-day, one-day, one-week, two-week, and one-month return.

While the day of the bear gap has historically finished in negative territory, compared to a positive anytime finish, the SPY tends to pick up steam over the following weeks. One week after a bear gap of 2% or more, the SPY has averaged a return of 1.81%, compared to just a 0.21% one-week anytime return. One month after the gap, the average return grows to 2.61%, nearly tripling the average anytime return of 0.89%.

What's more, by one month after the bear gap, standard deviation is actually lower than anytime standard deviation, suggesting volatility may settle down over the next several weeks. Even more encouraging news for traders today -- after a bear gap of 2% or more, the SPY has given a positive one-month return 80% of the time, compared to just 65.2% positive anytime returns.