The S&P 500 index over the last three days has seen amazing volatility, with the index rebounding a record 11% from a new 52-week low to close positive on a day that would have been way down. We haven't moved far from that close, with the SPX closing on Monday at 850.75, down 0.2% from the close on the big range day.
Q: How has the SPX performed in the past when it has seen a move from the low two days ago to the high of the current event date of more than 4.5%, yet the difference between the close two days before the event date and the event date is less than 0.8%, when the index has declined by at least 4.5% over the last month of trading?
A: According to the 12 previous occurrences of this event, EventEdge indicates that SPX has shown a somewhat bearish edge that peaks three trading days after the event. Thus, the projected date for the peak of the bearish edge relative to the current event date (Monday, Nov. 17, 2008) is Thursday, Nov. 20, 2008. SPX declines in 83% of the cases (10 of 12) by an average of 5.0% relative to the close on the event date. The average of the two rallies is 3.0%. The overall return of the 12 cases is -3.7%, which, based on the close of SPX on the event date (850.75), provides a target price of 819.27.
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Gibbons Burke is editor of MarketHistory.com.
