Substantial losses over the last twelve days -since prices hit their highest level ever- now come to minus 5.76 percent. Yet this cumulative drop –though seemingly exceptionally large- is far from unique: they account for some 4.5 percent of the 4,533 trading days since the beginning of 1996.
Though more such deep plunges happen in bear markets, they are far from infrequent during expansions.
The good news, though, as today’s diagram clearly indicates, is that they happen most frequently at bottoms; in fact, you can see just five –of these 204 incidents- at the 2000 and 2007 tops. Further, their cluster occurs when market corrections have bottomed out – and also just before prices resume their rise.
The news for tomorrow, however, is far from optimistic. In the past, prices fell further on the following day more often than they increased during bear markets – though the bull market average is not too comforting either, with price recoveries averaging only about 50 percent.
DJIA -2.08 percent
NASDAQ -2.61 percent
S&P500 -2.28 percent
