Thursday, January 24, 2008

Bouncebacks after Gap Downs

The Big Picture took a look at Paul Kedrosky’s post on yesterday’s whiplash action. Paul looked at the number of times that the Dow opened the day down at least 1% and rallied to close positive from 1928 to now. He found that yesterday’s swing of 625 points from the low to the close was the second highest rally for the Dow ever (after opening down more than 1%).

I took a look at the S&P 500 from 1950 to yesterday. Yesterday was the biggest point swing in that period. It was 7th largest in percentage swings. For the Nasdaq Composite going back to 1971, it was the 27th largest in point swings and 19th largest in percentage swings.

You can use the scroll buttons on the spreadsheet to move down the spreadsheet.





Even though we have had 3 bouncebacks already this year, it is a relatively rare occurrence. From October 1938 to September 1958 it happened 22 times (about 1 time a year). From 2004 through 2006 it happened 17 times (about 6 times a year). Here is a chart showing how many times it has happened. You can click on the chart for a larger view. Notice the frequency during the Great Depression, the internet bubble, and now.

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2 comments:

Anonymous said...

I take it the red chart is Nasdaq and blue is the Dow.

Thanks for the charts and the time frame analysis.

I wonder if the time present wild swings reflect dangerous times or a the new ability to play the market rather cheaply and often?

Hiroshi Hishida said...

The chart was on the bouncebacks for the Dow only. Each blue bar represented the amount of bouncebacks per decade. The Red bars broke down the bouncebacks for the last decade. The red bars show that most of the volatility came during the internet stock bubble era. However, the volatility looks to be coming back.