Sifting through the sell-off

  • SPX fell to new YTD low on Monday, closed in bear market
  • Similar 3-day sell-offs were sometimes followed by bounces
  • Volatility alert? VIX diverges from typical pattern

When the market retreats the way it has in recent days (falling into a bear market, for good measure—more on that later), traders can feel like they’re entering uncharted territory.

That’s rarely the case, and the good news is that the historical record provides some perspective about what the market has typically done in situations like this.

That doesn’t mean the past three days haven’t been noteworthy—they have. Friday was just the 43rd time since 1960 that the S&P 500 (SPX) lost more than 2% on back-to-back days. Yesterday marked an even rarer event, being one of only 12 times this two-day pattern was followed by another down day.  

Monday, in fact, turned out to be another 2%-plus down day, something that’s happened only six times in the past six decades—and hasn’t happened, period, in nearly seven years. And although the SPX was higher five days later in five of the six cases, with an average gain of 4.1%, that’s too small a batch of history to lean on. 1

But that’s not the only way to describe the price action over the past three days. Here’s another: Through Monday the SPX had closed lower three straight days, and its maximum loss over that span was more than 7.5%. That’s happened 34 other times since 1960, most recently on May 9:

Chart 1: S&P 500 (SPX), 3/24/22–6/13/22. S&P 500 (SPX) price chart. Steep three-day sell-offs.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

Overall, the SPX tended to rebound in the near-term, closing higher the next day in 21 cases (62% of the time) and closing higher a week later in 24 cases (71% of the time). But even though the chart shows the May 9 example fell into this bullish majority—the SPX closed higher the next day, and was also higher five days later—the market was still volatile: The index fell another 3.3% overall before rebounding off its May 12 low, then fell to an even lower low by May 20.

Also, it's worth noting that the overall results didn’t vary much regardless of whether the SPX’s maximum down move over the three days was at least 7%, 7.5%, 8%, 8.5%, or 9%. The SPX closed higher five trading days later at least two-thirds of the time, regardless of the size of the move.

Finally, some traders taking the market’s temperature yesterday may have noticed that the Cboe Volatility Index (VIX) closed slightly lower than it did on May 19:

Chart 2: Cboe Volatility Index (VIX), 3/24/22–6/13/22. Cboe Volatility Index (VIX) price chart. Closed lower than on May 19.

Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)

That’s potentially important, because until yesterday, May 19 marked the SPX’s lowest close of the year (3,900.79). That means yesterday the VIX was signaling a little less concern about near-term volatility than it did on May 19—even though the SPX closed nearly 4% lower than it did on May 19.

The VIX usually pushes to higher highs when the SPX falls to new lows. When it doesn’t, traders pay attention.

Market Mover Update: On Monday, the SPX “officially” closed in a bear market—more than 20% below its January record close. While at this point it’s arguably a milestone without much significance—the market has been in a clear downtrend for at least three months, and the SPX has already touched bear territory on an intraday basis—it does make it possible to benchmark the current bear against the eight others that have occurred since 1960.

After setting a record close of 4,796.56 on January 3, it took the SPX 111 trading days to hit the bear-market threshold. That was shorter than usual—“Tracking the bear” showed it took the SPX 157 trading days, on average, to cross that line in previous bear markets. It also showed the average wait to reach the bear-market low was an additional 118 trading days, and in seven of the eight bear markets, it took less time for the SPX to enter bear-market territory than it did to hit its eventual low.

In other words, by the time the SPX crosses the bear threshold, there was usually more selling in the rear-view mirror than on the road ahead.


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All figures reflect S&P 500 (SPX) daily prices, 12/31/59 – 6/13/22. The maximum loss of the three-day pattern was measured from the current day’s low to the closing price three trading days earlier. “Closed/ing higher a week later” means the SPX closed above the close of the third day of the three-day sell-off pattern five trading days later. Supporting document available upon request.

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