Forgive me father, for I have data mined.
I wanted to see what happened when the S&P 500 opened down 1.5% one day and closed up 1.5% the next day (which happened yesterday, and is possible today). My suspicion was that this might lead to higher returns in the very short term. This is not the case.
Of the 28 times that this has happened since SPY began trading in 1993, stocks were higher 14 times and lower 14 times in the three days following the +1.5% close. Knowing this, it’s probably not surprising that the average return three days later was 0.03%.
What you’ll notice in the chart below is that these types of occurrences (green dots) tend to happen in down trends (the red line is the 200-day moving average).
You don’t need a doctorate in technical analysis to know that we’re in an unhealthy environment. While it’s difficult not to get too excited on the up days, and too despondent on the down days, it’s important to understand that these types of markets- where a stock like Netflix can fall 40% in two months- take time to heal.
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