Monday, October 27, 2008

Chart of the Day: Are We Close To A Bounce?

Once again, the market sold off in the final minutes of trading. The Dow was still positive with just 15 minutes of trading left. I know because I contemplated leaving for the gym, but then I thought I better stick around to see how the market closes.

I don't know where all those sell orders came from, but in the last 15 mintues of trading, the market totally fell out of bed, such that the Dow fell -200 points by the bell. Volume wasn't especially high today, it was more like another example of too few buyers willing to step up. Frustrating.

If you look at the chart above, you might notice that the S&P 500 is now -25% below its 50-day moving averge (blue line). Raymond James noted that "since 1928, there have only been five other periods where the SPX has been more than 25% below its 50-day ma".

Raymond James looked at the ensuing 50 days in each case, and calculated the rallies in the market. The minimum rally they found was +14%, which occurred in 1937. The maximum rally was +66%, in 1932.

The hard part is that the market wasn't being liquidated by deleveraging hedge funds back then, at least not that I know of. That said, I agree that there is a big, fierce, snapback rally brewing out there. I hope that I am nimble enough to take advantage of it. And then the question will be, how quickly does any rally get sold?


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