400+ Point Days For The Dow - A Look Back

I came across a post at Bespoke Investments, Biggest Dow Point Gains and Percentage Gains. Today was the fifth biggest one-day point gain, and the 23rd biggest one-day percentage gain. I decided to look at the one year chart for DIA (DIA), and plot each of the 400+ point days:

I count eight 400+ point days, most of which occurred during October and November of last year. Out of these, two days were followed by sustained movement higher.

- On 10/28/08, an 889 point rally was followed by an uptrend that lasted a week, which then followed by a drop that broke the prior low.
- On 11/21/08, a 494 point rally was followed by a more gradual rising trend that lasted until just into the new year.

In both of these cases, price was rallying off of the low. In five of the other cases, the market was trading significantly lower within a week of the 400+ point rally.

What should we take from this? First, a 400+ point rally does not automatically mean that the market is entering a period of sustained rallying. Given the small sample size, it is difficult to draw any more substantial conclusions. I, for one, will be looking for long-side trades on a pullback. However, it is worth noting that these large bear market rallies, at least in the past year, more often led to reversals lower as opposed to lasting moves higher. Bespoke has a list of next day percentage changes after these large moves.

In addition to the short positions I’ve listed in prior posts, I added some long exposure to gold miners today. Here is the SPDR Gold Trust (GLD) chart:

I started position in Harmony Gold Mining (HMY) and Yamana Gold (AUY):

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