October 15, 2008
The DJIA mirrors that pattern, although todays -7.87 percent fall is a smaller number, whereas its 1987 dive of -22.61 percent is worse, and remains the record in recent times.
Finally, the NASDAQs -8.47 percent decrease is just the sixth worse since 1987; and at that time it fell by -11.35 percent on October 19, 1987 and then by -9.00 percent on the next day.
The see-saws of the last three and a half weeks, and their magnitudes are unprecedented in recent times. Who is not in search of a generalization, or rule, that can describe these huge fluctuations? An appraisal of the deep losses and the pattern of subsequent changes from 1987 to data could provide insights. The following time graph of the S&P500 since 1987, with the vertical lines indicating the deep loss days, is helpful.
Clearly, the major plunges occur at turning points of the S&P500 index; yet while the first two coincide with subsequent price appreciation, it is easy to conclude that the third incident, of 2000 is two faced, marking either a further increase or initiating a major decline. Moreover, the comparison with the history of the 2000 reversal and the subsequent rise, reveals first, that the present drop has not yet reached the previous low point, and also, that substantial gains hover over the future.
DJIA -7.87 percent
NASDAQ -8.47 percent
S&P500 -9.03 percent
