Todays closes, so different from Thursdays and so much larger in size, require a review of past incidents sharing a similar pattern. But first, look at the summary of Fridays activity. The NASDAQ fell -3.11 percent, followed by the S&P500 down -2.88 percent and the DJIAs loss of -2.62 percent.
The record shows the NASDAQ with 131 other closes this deep since January 2000, whereas both the DJIA and the S&P500 have 67 such days. Furthermore, there are just 46 sessions in which all three of the indices simultaneously deteriorated further than they fell today. Next, turning to the pattern, with the S&P500 down a single day, and the DJIA and the NASDAQ falling for the second straight day, the data reveal only 9 since 2000; and, in addition, in the past, increases outnumbered declines 2:1.
Yet the more critical insight results from classifying these loss occasions in terms of market dynamics: when prices are tending higher and when the trend of prices is down. The diagram displays these occasions. The vertical lines divide these trends, whereas each occasion is marked with a green triangle or a red circle. The red circle indicating sessions like todays with each of the index losses deeper than todays- and the green triangle represent days on which all three indices increased more than today.
This history reveals that large losses as well as large gains dominate declining markets. That is, nine days worse than todays and 17 days with larger absolute gains, for a total of 26 occur during the 2000/2003 decline. But only two of each happened while prices headed up between 2003 and 2007. Similarly, the following decline has a total of 49 such large changes, whereas they occur 15 times in the 338 trading days since the March 2009 low.
Of course it would be foolhardy to use just a single, aggregated indicator to divine the future of prices; yet the configuration or arrangement of these data points do imply that large daily changes, in both directions, repeat more often when prices are falling. DJIA - 2.52 percent NASDAQ - 3.11 percent S&P500 -2.88 percent