How Concerning Is A 90% Down Day

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Includes: DDM, DIA, DOG, DXD, EEH, EPS, EQL, FEX, FWDD, HUSV, IVV, IWL, IWM, JHML, JKD, OTPIX, PSQ, QID, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RWM, RYARX, RYRSX, SCAP, SCHX, SDOW, SDS, SFLA, SH, SMLL, SPDN, SPLX, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU, SPXV, SPY, SQQQ, SRTY, SSO, SVXY, SYE, TNA, TQQQ, TVIX, TWM, TZA, UDOW, UDPIX, UPRO, URTY, UVXY, UWM, VFINX, VIIX, VIXY, VMAX, VMIN, VOO, VTI, VTWO, VV, VXX, VXXB, XXV
by: Chris Ciovacco
Summary

Stocks experienced the first 90% down day of 2019.

How have stocks performed following 90% down days?

Does the market's 4-5% correction offset recent constructive setups?

Lopsided Selloff On Monday

Monday brought the first day in 2019 that featured extremely lopsided volume figures. Over 90% of NYSE (VTI) volume was associated with declining issues.

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We know a 5% correction falls into the normal and to be expected category. How concerning is a 90% down day? As shown in the table below from Pension Partners, forward returns and percent positive figures for the S&P 500 (SPY) are slightly better following a 90% down day relative to an average day.

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Bigger Picture

There has been a slight shift in the data associated with the market’s (VOO) long-term trend, but nothing earth-shattering at this point. Today’s relatively small adjustment to our asset mix got us back in line with the data and respects the uncertainty related to the duration of the current decline.

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The market’s waning momentum in recent weeks told us to be open to a normal 4-10% pullback in the S&P 500 (IVV). As of Monday’s close, the S&P 500 has experienced a drawdown of 4.55% based on closing prices and 5.17% using the recent intraday high and intraday low.

Does Selloff Negate Recent Rare Market Signals?

This week's stock market video looks at the market's current drawdown in the context of history, allowing us to put some context around the current trade-war scare in stocks.

The chart below provides a good visual proxy for the, thus far, relatively small shift in the data related to the market’s longer-term trend. The S&P 500 closed below the 50-day and below the gap. Price still remains above a still upward-sloping 200-day.

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VIX: Lower Intraday High

The VIX (VXX) was a mixed bag during Monday’s session. It printed a daily closing high above last week’s high, but the intraday spike was lower than last week’s spike. Since closing prices tend to be more relevant, it is probably fair to say the VIX closed Monday in “still concerned” mode.

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As noted in this video clip, even under a favorable longer-term outcome scenario, the market may continue to be volatile over the next 90 days. It is possible we will sit tight for the remainder of the week; it is possible the data will call for additional incremental steps to reduce exposure to risk assets. We will continue to take it day by day with an open mind about all outcomes.

Disclosure: I am/we are long VOO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This post is written for clients of Ciovacco Capital Management and describes our approach in generic terms. It is provided to assist clients with basic concepts, rather than specific strategies or levels. The same terms of use disclaimers used in our weekly videos apply to all Short Takes posts and tweets on the CCM Twitter Feed, including the text and images above.