The S&P 500 index has seen several heart-stopping plunges to intra-day lows in the last week, but Wednesday's was different - it actually rallied from a 3.1% deficit as of the low of the day to a 2.1% gain on the day - an event that hasn't occurred since the day after the 1987 crash. It's the only occurrences of a 3% move to the low with a 2% rally on the day in history (which goes back to 1977) other than October 20th 1987.
There were three moves from the open to the low (Open2Low) in excess of 3.0% since last Thursday. Most of these moves have been accompanied by closes down as well. Wednesday's rally was quite spectacular. It formed a very large range, which Scott Murani discusses in another trading idea, and an 'outside day' pattern, where the high is higher than the previous day's high and the low is lower than the previous day's low.
Q: So, how has the SPX performed in the past when it has seen moves to the intra-day low in excess of 1.1% in magnitude repeated in five of the last seven trading days?
A: According to the 12 previous occurrences of this event since 1932, EventEdge indicates that SPX has shown a strong bullish edge that peaks 4 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Wednesday, Jan. 23, 2008) is Tuesday, Jan. 29, 2008. SPX rallies in 92% of the cases (11 of 12) by an average of 4.3% relative to the close on the event date. The average of the one decline is 0.8%. The overall return of the 12 cases is 3.9%, which, based on the close of SPX on the event date (1338.6), provides a target price of 1390.81.
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HYPERLINK "http://www.markethistory.com/staff/detail.html?s=kolton" Anthony Kolton is president of Logical Information Machines and Markethistory.com, Inc.Gibbons Burke is editor of MarketHistory.com.
