Todays market dropped more than -3.00 percent for the NASDAQ; the S&P500 was off 2.82 percent while the DJIA fell -2.82 percent. Evaluating the severity of this setback by counting the number of worse losses than today yields these results. For the S&P500, only 69 sessions since January 2000 closed further down; for the DJIA, the number is 76. The NASDAQ rank of 218 is not comparable because of its steep computer related correction.
The first diagram shows the NASDAQ closing prices for the past ten plus years. The red markings identify the dates on which this index suffered deeper declines than today. It takes only a quick scan to notice that almost all came when the trend of prices is down. Only three occurred during the long 2003 to 2007 bull market. Furthermore, the records of the DJIA and the S&P500 display near identical conduct: losses this deep accompany falling prices.
Yet such forecasting, motivated by the simple projection of serious losses as todays, would be imprudent. Consider the time paths of the S&P500 in the second diagram. While todays drop is its worse since May 6, sharp price rises followed all previous incidents. In addition, note that their frequency the number of days between their reoccurrence- remains in the same range. The next diagram illustrates this distinction.
Accordingly, using the rough criterion that deep losses characteristically precede further declines fails to provide reliable information in the short run. This defining difference, between the cluster of incidents during price declines of the NASDAQ profile, and the short term resurgences of the S&P500, indicates that a mere counting of events provides little, if any, guidance in projecting changes in the near term. DJIA -2.49 percent NASDAQ -3.01 percent S&P500 -2.82 percent