March 26, 2009
To put todays strong action in perspective, remember that only 35 other closes in this century were as large. The DJIA up 2.75 percent, the NASDAQ rising 3.80 percent, and the S&P500 increasing 2.33 percent together in one session was even more extraordinary before 2000 with just 16 in those 50 years. (The NASDAQ had only eight in its shorter record.)
However, a closer look at the record, and specifically at the circumstances surrounding these events, indicates that caution is in order. While it is true that on four of the following days, prices rose as much if not more, most, if not all of these increases occurred not when the market was in a rising trend but rather in times of severe correction.
The diagram below shows the S&P500 closing prices since January 2000. It is clear that these 35 super strong days, marked with an o, are clustered at times of decline. It is clear that they do not identify, nor precede rising prices. So even if todays results are welcome switch from the many recent losing days, they may foretell worse times for the future.
In the past, since 2000, declines dominated the following day: the three indices were together in scoring only 16 additional advances including the large changes described above- and falling on the remaining 19 days.
DJIA 2.25 percent
NASDAQ 3.60 percent
S&P500 2.33 percent