Big Down Days: A Lesson from Recent History

The $SPX was off by ~2% today so we ran a study of every time that has happened in the last 4-years. It’s pretty easy to ask Market Memory what happens 5-days after a selloff like this. The result is below:

Look closely at the Alpha Curves (pattern recognition algo) showing the most dominant patterns in the data set. The most dominant pattern is for a bit more selling between now and day 5, yet the stats are statistically significant to the upside. Markets usually rally after a big selloff like this, but not before a bit more damage. Key intelligence.

Market-Memory-post-near-2-percent-down-days-July-31-2014

 

Quick note to all the Market Memory users out there. The UI looks a bit different because this is a sneak peak at the next release. Also, there’s a new feature which allows you to exclude the “anchor date” (which is the day you used to describe your study). This has the effect of ignoring what you know (in this case, we already know that the market already went down ~2% so I exclude it from stats and Alpha Curves). Pretty cool, right?

  • Market Cap Arbitrage: SPY vs IWM
    Posted by on July 21st, 2014 at 1:49 pm

    The spread between domestic large cap stocks ($SPY) and small cap stocks ($IWM) has reached a statistically significant level.  These ETFs have an economic and statistical correlation which bounds […]

  • How to Deal with High Frequency Nowcast Economic Data
    Posted by on July 11th, 2014 at 2:25 pm

    Moar GDP revisions, that’s what we need (said no one)! The Atlanta Fed has introduced a new dataset called a “nowcast” for GDP called GDPNow. A […]

  • An Almost Impossible VXX Rally
    Posted by on July 7th, 2014 at 3:11 pm

    For the past couple years, being short volatility has been a popular and successful strategy for traders. So successful that brokers started regularly pitching short VIX strategies […]

  • 4 Misconceptions about Dow Theory
    Posted by on July 3rd, 2014 at 12:24 pm

    Dow Theory is well known by most market technicians. Like most investing frameworks, people tend to cherry pick the rules that suit them at the […]

  • Gap Personality: When to Chase and When to Hold Off
    Posted by on June 13th, 2014 at 3:34 pm

    Gaps are one of the last bastions of structural inefficiency in the market and we’ve seen a ton of them lately in popular momentum stocks. […]

  • Sophisticated versus Effective
    Posted by on May 23rd, 2014 at 1:36 pm

      In any field where complexity is part of the discipline (think: finance, technology, etc.) there is a temptation to appear more sophisticated than others. […]

  • Three Month Consolidation Break
    Posted by on May 22nd, 2014 at 2:22 pm

      We’ve swung from mildly oversold to mildly overbought. Depending on your outlook, the market is either consolidating and poised to breakout or stalling out […]

  • Efficient Markets Believe In Trends
    Posted by on May 21st, 2014 at 1:19 pm

    The CFA Institute is an extremely influential organization and caretaker of the coveted Chartered Financial Analyst designation. They’re also one of the devoted members of […]

  • Marketview: Lost Steam
    Posted by on May 7th, 2014 at 6:53 pm

    The environment has changed and adding risk is no longer favorable. The most hated bull market of all time ISN”T OVER but lots of warning […]