“Day After” Returns Following -2.5% Drops In S&P 500

I thought it would be interesting to compile recent daily data on the S&P 500 (^GSPC). I looked at 2.5% losses and larger on a daily basis. I looked to see what the following day’s return was. I compiled the numbers in a histogram to get an idea of what the likelihood that tomorrow will be a down day.

It was interesting. There were 32 occurrences of 2.5% or less return and they were followed by declines in 75% of the cases. There were eight “days after” that had returns greater than zero. The day after returns were measured from the close to the close. Odds are good that tomorrow will be a down day. It may pay to short the rallies.

I thought it would be interesting to look at the size of the range following 2.5% drops. The ranges tended to be rather large in size.

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