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Is This Decline Really All That Unusual? August 20, 2007
-------------------------------------------------------------------------------------------------------------------- This is an abbreviated sample of a comment posted for subscribers --------------------------------------------------------------------------------------------------------------------
Over the weekend, I posted a comment that went over some of the remarkable events of the past couple of weeks, and particularly from Thursday.
We have witnessed a truly extraordinary set of events, and the few historical precedents that are available strongly suggest that we have achieved enough of a washout, with enough panic, that we should have carved out at least an intermediate-term bottom last week.
Pretty much everywhere we look, though, the nay-sayers are suggesting that the correction hasn't been deep enough (even though it's the worst one in many years...), or it hasn't gone on long enough.
So I thought it would be instructive to take another look at history. This time we'll ignore sentiment, we'll ignore breadth - well, heck, let's just ignore anything that doesn't have to do with price and time.
What we're going to look at today is every intermediate-term decline in the history of the S&P 500 to see if we can get some additional clues as to what's going on here.
The charts below were created from looking at every 52-week high in the S&P 500 from 1950 - present. I then marked the bottom of every intermediate-term low to record the stats for the correction. By "intermediate-term low", what I required was that the price had to mark at least a 3-month low, meaning that prices didn't violate that price for three months before and after that date.
First, let's look at the magnitude of declines during these corrections. Each blue bar in the chart below represents one individual correction. I identified 62 of them since 1950.
The corrections ranged from just under -5% to more than -50%, with an overall median of -10.2%. The median is the best representation of "average" in this case since the larger declines could really skew the figures, so half of the corrections were less than -10% and half were more than -10%.
The current correction is darn close to the average, at -9.4%, so this first look is right in line with prior lows.
Now is where things get a little hairy, though - the number of days that traders have suffered through declining prices.
The median number of calendar days in all the prior corrections was 75 days, with a minimum of 13 and a maximum of 1082 (yikes!). The current drop has lasted only 28 calendar days, assuming last Wednesday marked the lowest closing low of this decline.
There were 7 other corrections that were quicker than this one, and on average the S&P dropped -7.7% during those drops. So the current one has been a bit deeper than those other "quickies". Home | Commentary | Indicators | Models | Sectors | COT | Subscribe | About Us
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