The tremendous swings yesterday, up in anticipation of the Fed lowering the Federal Funds rate to 1.0%, a selloff and then another rally after the fact, and then a last minute, jaw-dropping selloff into the close, were an amazing spectacle to watch, but in the context of what's been happening in the last month, the jaw-dropping might be that of a yawn in progress.
The selloff brought the S&P 500 index down for a 1.1% loss on the day (Wednesday), down 10.42 points to close at 930.09. This followed Tuesday's 'very big' 10.8% rally, one of the biggest in history. Jay Pasch made a great call, anticipating the softness yesterday, which may continue into today. The trend picture hasn't changed: the SPX closed below all the moving averages we track.
Q: What does history say about the one-two punch of a 'very big' gain in the SPX followed by a decline where the close is lower than the open in the context of a 'big' five-day gain.
A: According to the 10 previous occurrences of this event, EventEdge indicates that SPX has shown a strong bullish edge that peaks 26 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Wednesday, Oct. 29, 2008) is Friday, Dec. 5, 2008. SPX rallies in 90% of the cases (9 of 10) by an average of 5.3% relative to the close on the event date. The average of the one decline is 0.8%. The overall return of the 10 cases is 4.7%, which, based on the close of SPX on the event date (930.09), provides a target price of 973.8.
If you'd like to explore this historical trading idea in more depth, click here to bring it up in EventEdge.
Gibbons Burke is editor of MarketHistory.com.
