Looking Back

There is no better teacher than history

Yesterdays market action has people nervous; I’ve received hundreds of emails asking “what should I do?” Thanks to Yahoo Fiance, I downloaded 50 years of market data for the S&P 500, and analyzed the market action following previous down days of greater than 4% (it turns out this has happened 16 times in the past 50 years).

I charted out the previous 5 instances of this kind of market action. Take a look at the charts and see the surprising thing they all have in common

That’s right, in each and everyone one of these charts, the S&P climbed back higher than the price before the 4% down day in less than two months.

If you want to see the raw data and do some charting of your own, I’ve included it below

4% or greater declines in the stock market

Moving Forward

Based on todays market action, I would expect the market to recover slightly for the next couple of days, before continuing a 4 to 6 week down swing. Taking out today’s lows should allow for some quality short side trades. However, the downtrend isn’t going to last forever, so find stocks that have little resistance and short term (4-6 week) setups. Use tight stops and good money management and you’ll turn a nice profit between now and Thanksgiving!

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