Here is what I didn’t like about today’s market action in light of yesterday’s sell off. At first, I favourably viewed the bounce off the low tick in the Spooz printed at around 1:15p. But now for some interesting stats. I wanted to take a look at the movement off the lows following large down days in the market like yesterday. Using a simple market model, I first looked at % off lows following >25 handle down days in the Spooz that occurred in an up market (which I defined as the prior 30d change being >5.5%). Note that today the Spooz closed 62bps off its lows.
For >25 down days with a prior 30d change >5.5%,
Avg % Off Lows on following day: +1.22%
Median % Off Lows on following day: +1.02%
Playing around with some additional input parameters, suppose a >30 handle down day. Note that the range yesterday was 32.25 handles.
For >30 down days with a prior 30d change >5.5%,
Avg % Off Lows on following day: +1.13%
Median % Off Lows on following day: +0.96%
In either case, % off lows tends to be higher than what we saw today of just 0.62%. So even though we did see aslight bounce in the late afternoon today, the truth of the matter is that this type of move is fairly common. In fact, the numbers above show that we tend to see a larger bounce off the lows following large down days in the market.
As a final piece of colour, I will add that the Spooz closed down today more than the average and median % changes following large down days. To use the worse case, the avg next day change is -0.30%, the median next day change is -0.23%. Today the Spooz closed down about 0.68%. These basic stats of next day percentage off lows and daily percentage changes combined suggest to me that today was actually an uglier day (again, looking at it in the proper context) than it appeared to be.
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