S&P Super Spikes: Bullishness or Short Covering?

Trading in stocks this month has so far produced two of the biggest daily increases in the S&P 500 since at least 1982 (see #4 and #9 on the list below of top-ten daily gains). Technicians will interpret this as a bullish sign given such huge spikes often presage a shift in sentiment and consequent upswing in stocks.

Clouding this interpretation somewhat is a regime change. Back in July, the uptick rule was eliminated for U.S. short sellers. Ticker Sense Blog puts up some charts in a March 24 post suggesting the change may have contributed to the heightened volatility seen in stocks since the summer.

Perhaps, then, March’s big increases were inflated by bigger than usual scrambles to cover short positions. But a commentator in the comments section of the Ticker Sense post offers an argument for disregarding short selling as an explanation: eliminating the uptick rule doesn’t have much of a practical impact, the commentator notes, except perhaps for the minor one of eliminating the few seconds to a few minutes short sellers faced in the past while waiting for an uptick in price to occur.

Biggest Daily Increases in the S&P 500

1	Oct. 21/1987	9.1%
2	July 24/2002	5.7%
3	Aug 17/1982	4.8%
4	Mar 18/2008	4.2%
5	Oct 15/1998	4.2%
6	Sept. 1/1998	3.9%
7	Oct. 11/2002	3.9%
8	Jan. 17/1991	3.7%
9	Mar 11/2008	3.7%
10	Mar 13/2003	3.5%

Comments

[Fuzzygreysocks]

Howdy Mr. MacDonald,

Any observations or comments that 3 of the Biggest Daily Increases (#'s 2, 7 & 10) ocurred durring the dot.bomb period?

TIA.