Friday's 20th anniversary of the October 19, 1987 market crash found investors awash in red ink with S&P 500 futures down 41.50 points, or -2.68%, to close at 1505.25. Friday's precipitous decline had us running for the history books in search of clarity...
Q: We coupled three main indices in this study, asking the question, "during the fourth quarter, how have S&P 500 Index futures traded after being down 'very big', NASDAQ down 'very big', and the Dow Jones Industrial Average down 'extra big' all on the same day?" We defined down 'very big' as price being two standard deviations below the average one-day percentage change measured over the last 30 trading days, and down 'extra big' as three standard deviations below the average one-day percentage change measured over the last 30 trading days.
A: According to the 6 previous occurrences of this event, CME S&P 500 futures has shown a strong bullish edge that peaks 33 trading days after the event. The S&Ps have rallied in 100% of the cases (6 for 6) by an average of 7.3% relative to the close on the event date, projecting an index target of 1615.72 by Thursday Dec. 6, 2007.
The annotated chart above depicts price support offered between the 1489.75 open- gap area and the 1496 prior breakout level; look for early morning weakness and a test of this area to hold by late Monday morning.
If you would like to see more details of this historical edge, go to www.markethistory.com
Mr. Jay Pasch is a private futures and equities trader based in Minnesota. He may hold positions in the instruments mentioned in his trading ideas.
