Here it is, the Big Sell Off… has been Wrong the past 169 Times

In case you missed it, the Dow was down around 300 points yesterday to bring the index into negative territory for the year (just a handful of days after hitting a new intra-day and all time closing high) – spiking the Vix 27% and no doubt bringing a bunch of worrisome headlines around the financial world today along the lines of:

Here it is… this is the big one = Marc Faber followers

Eureka! Volatility is back!  = Managed Futures & Global Macro managers

Stocknado = Josh Brown

We’ve been due for a pullback  = such and such asset management co.

Relax, it’s all in your mind = Barry Ritholtz

The easy thing to do today is write about how this shows just how scary stocks can be… We’ve surely done it before (here, and here). To talk about how and why you should be diversified (here), and to talk about this could be the start of a move lower as evidenced by a few chart patterns (divergences in the Russell and MidCap). But every time we’ve done that for the past 5 years, we’ve been wrong.

Every dip like this over the past five years has been little more than that – a dip. It hasn’t been the start of the next big bear market. It hasn’t been the crash we’ve been waiting for and the return of big volatile swings. It’s usually been one off. A quick bout of selling in the otherwise boring day after day slow grind higher, leading to those complaints about there being no volatility.

Consider the numbers since the lows in March of 2009. Since then the S&P has experienced a single day loss of -1% or more 169 times, -1.5% or more 88 times, and -2% or more 52 times (with about 45% of all of those happening in 2009 and 2010). That’s not a whole lot of days out of the 1,300+ days the market has been open, but it’s not all that  rare either. These days happen. But what concerns us more than the fact that they happen, is what typically happens after them. What’s the average return of the S&P  1 day, 30 days, and 90 days after experiencing a -1% loss or greater?  That’s the type of question we’re interested in.  Turns out – buying the close on such a day the past 5 years has been an excellent strategy.

Day After Returns(Disclaimer: Past performance is not necessarily indicative of future results)
Data = Since March 2009

The average next day performance after a big down day (loss of more than 1%) has been about three times the average daily performance (.25% versus .09%). Talk about BTFD… (look it up). We’re told as young investors to be very careful trying to catch the falling knife, but this has been more like catching a falling balloon, untying it, and watching it zoom higher.

Who knows what today, the next month, and next 90 days will bring. Is this drop a falling balloon unable to do any damage, or the proverbial falling knife which might cut your hand off? We won’t pretend to know – but we’re sick of treating every one of them like the falling knife. They won’t all be dangerous to catch… and indeed they’ve been anything but for the past five years. “This time is different” is notoriously wrong, and to say this sell off is any different from the other 160 or so we’ve seen in recent memory would be stretching it.

One of these times it will be different, and long volatility strategies such as managed futures and global macro will be waiting – but the odds here likely favor another bounce higher and new all time highs on the horizon for stocks.

PS – Mr. Market – this is an attempt at some reverse psychology. We really do want some volatility and down moves, not a return to the slow crawl higher… We’re hoping a nod to the likelihood this amounts to nothing may in fact make this time different. 

 

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.