Bad Company: The History Of The 10 Biggest Daily Percentage Rallies Is Bearish For Investors

Currently, as of midday on Thursday, March 26, the Dow Jones Industrial Average (DJI) is in the midst of a bear market rally boost of 23% off the March 23 intraday low. This comes on the heels of the fifth-largest single-day percentage rally in Dow history.

1 03/15/1933 15.3%
2 10/06/1931 14.8%
3 10/30/1929 12.3%
4 09/21/1932


5 03/24/2020


6 10/13/2008


7 10/28/2008


8 10/21/1987


9 08/03/1932


10 02/11/1932


11 11/14/1929


A quick look at the list of the comparable rallies finds our recent bump keeping very bad company. The context for all of the previous such rallies has been the most bearish periods in market history.

Let’s dive deeper into the data to see if there are any historical patterns that we can use to evaluate the current market environment.

Here’s the Dow in the 1929-1930 period:

As we will see, the closest analogue to our current market setup is the very first rally day on our list, the October 30, 1929 rally of 12.3%, the third-largest of all time. This rally came at the bottom of the third phase of a violent -45% decline off an all-time high and preceded a bear cross of the 50-day Exponential Moving Average (in blue) below the 200 (in red) by a few days. The following rally travelled 32.6% from the previous day’s intraday low.

Similar to the impetus provided by the current Federal stimulus bill, the rally was sparked by news that the Rockefellers were buying the market:

The authorized statement of John D. Rockefeller yesterday that he and his son believe that there is nothing in the business situation to warrant the destruction of values which has taken place during the past week and that they are buying and will continue to buy common stocks which represent sound investment values had an electric effect on the market. Mr. Rockefeller’s statement followed statements by the country’s leading bankers and industrialists that in their opinion the pendulum had swung too far.

These statements brought a wave of buying into the market that quickly absorbed many big blocks of stock which had been overhanging the market, and that placed the market once more firmly on its feet and headed toward the recovery that continued practically all day.

Source: New York Times

Unfortunately for traders and investors who bought into the three-day rally, the Dow subsequently dropped -30.6% to a substantially lower low. And this is just the first of many instances in which market participants were punished for buying into a similar big pop.

The following rally day of note occurred the day after DJI made its first substantive bear market low, on November 14, 1929, a gain of 9.3%. This was the first move in a real bear market rally that gained over 52% from the low. As we will see as we go through this data, that was the only example among the prior top 10 rally days of a move that traders were rewarded, rather than punished, for buying into.

It’s easy to see the similarities between the current market setup and the October 30, 1929 rally:

dji 2020

As in 1929, the Dow is coming off its third phase of a sudden and violent decline off an all-time high, having dropped -38.4%. There has also been a bear EMA cross a few days before the recent bottom. The current rally has moved DJI 23% from its price low. If the analogue continues to play out, and we are in the fourth phase of an initial bear market decline, then we can expect a substantially lower low. If we apply the template of a -30% drop from the current rally price high, that would give us a Dow value of about 15675, which equates to about the level of the January/February 2016 lows.

Now let’s continue to look at the action surrounding the rest of the biggest daily percentage gains in Dow history.

Here we have the market surrounding the big daily pops of 1931 and 1932:

1931 dji dow

In the case of the October 6, 1931 rally of 14.8%, the largest daily percentage gain of all time, the market had dropped over -65% from its bear market rally high and saw a nice rally of about 39% from trough to peak over about a month. Nice gain if you caught the move early and cashed out in time. If you didn’t, the there was a 66% drop to the bear market price low awaiting you. The same result played out from a pop of 9.4% on February 11, 1932.

Now let’s look at the period subsequent to to the 1932 price low of the 1929-1949 long-term bear market.

1932-1933 dow djia

The August 3, 1932 example is something of an outlier in our data group, since it came in the middle of a large move off an important price low, rather than very close to the start of a rally following a large decline. From the intraday low, the market rallied a very substantial 53.6%. But if a trader did not book profits quickly, the gain turned into a loss in less than 4 months, and the decline from the high was almost -40%. Results were even worse for traders who bought into the September 21, 1932 rally of 11.3%, which very soon reversed to losses of -35% from the high.

The October 21, 1987, rally of 10.1% does bear some resemblance to our present market, and is the next nearest analogue:

dow 1987

In this case, the market was -41% from its all-time high and also in its third phase of decline when it swung violently off the prior session’s intraday low to a peak gain of 29%. Shortly thereafter, there was a bear cross of the 50- and 200-day EMAs. But from the intraday price high on October 21, it took about 14 months for the market to get above it and continue higher. In the meantime, investors and traders had to sustain losses of as much as -17%, though there was no further price low and the market did continue on to a great bull market. This is the best example for those who are bullish now and believe that our current market condition is similar to that of 1987. This is the only example of a daily gain of 9% or better that came in the context of an ongoing bull market.

Now we’ll look at the bid daily rallies of 2008:

dji dow 2008

Both of these instances occurred close to each other in the period following the Lehman event. On October 13, 2008, the market rallied 11%, and on October 28, 2008, it popped 10.8%. The gains of 15.74% and 18.1% very quickly turned into losses, however, and investors who jumped on those bumps ended up having to endure a -35% additional decline into the 200-2011 bear market price low in March 2009.

As you can see, massive daily rallies of the sort that we experienced on March 24 come in the context of serious bear markets. They can sometimes come near the beginning of large bear market rallies that can be profitable for astute and nimble traders, but investors have almost always found them to be bull traps that result in substantive losses that take a long time to recover. In virtually every case, a much better buying opportunity follows later for patient traders and investors.

Of course, it could be different this time. Currently, we have a Federal Reserve Bank that has resolved to backstop all financial market and economic losses and risks, and a Federal government that is on board with any and all extreme fiscal measures to ensure consumer end-demand. The problem is that these seem to be more like acts of desperation that come at the end of something rather than bold acts of leadership that come at the beginning of something.

Readers will also find this piece complementary to the above analysis:

Crash Of 2020 Exceeds 1929 To Key Technical Targets

Thank you for reading.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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The Dow marked its 2nd straight gain — but Thursday jobless claims may pose the stock market’s biggest test amid coronavirus

Jobless claims haven’t been a focal point for investors for more than a decade, but market participants will be keenly watching Thursday’s figures because they could provide the clearest sign yet of the damage wrought by lockdowns that have swept across much of the U.S. to mitigate the spread of the COVID-19.

“’How will the markets survive the U.S. initial claims going ballistic?’ is probably on everyone’s minds this morning” wrote Stephen Innes, chief global markets strategist at AxiCorp.

Check out: Jobless claims set to soar by the millions as layoffs surge due to coronavirus shutdowns

Market participants are bracing for a number that could run into the millions — figures that are likely to bring to an abrupt end the first win streak for the Dow Jones Industrial Average

DJIA, +2.39%

and the S&P 500 index

SPX, +1.15%

since early February.

With one out of every five Americans under some form of stay-at-home measure to help lessen the spread of the illness that was first identified in Wuhan, China, in December, some economists are anticipating that as many as 5 million workers will show as applying for unemployment insurance in the coming weekly report. It is a staggering number that some market participants say is too large to discount and one that will likely knock the air out of a market that is searching for its footing higher.

See: 23 million American jobs in immediate danger from the coronavirus crisis

“We realize freakishly bad economic data is coming,” wrote Fundstrat Global Advisors’ Tom Lee in a Wednesday research note. “On Thursday, some economists are projecting weekly jobless claims to surge to as high as 5 million,” he wrote.

“Many of our more active and tactical clients are short into this, arguing that such wildly bad news cannot be discounted and thus, this ‘tape bomb’ should lead to a big sell-off,” he said.

On Tuesday, BTIG analysts Julian Emanuel and Michael Chu said that if a $2 trillion coronavirus rescue package being voted on by lawmakers late Wednesday wasn’t approved by the time those gut-wrenching numbers come out on Thursday, it would likely knock the wind of the market’s sails.

The BTIG researchers wrote that the “psychology of such a large weekly claims number without a deal done will inflict incrementally larger damage” on an already fragile market.

The Senate late Wednesday approved the relief bill, which is designed to shield the economy from the pandemic that has halted normal business and personal activity.

“The problem is new jobless claims will measure the extent of U.S. policy failure, and with the Congress dilly-dallying, it will not help the matters,” wrote Innes.

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Trump touts ‘biggest stock market rise in history yesterday,’ but many investors believe worst isn’t over amid coronavirus panic


President Donald Trump

That is Trump on Saturday morning, referencing the Friday surge by the Dow Jones Industrial Average

DJIA, +9.36%

, the S&P 500 index

SPX, +9.29%

and the Nasdaq Composite

COMP, +9.35%

, which constituted the major equity benchmarks’ biggest daily percentage gains since 2008.

Friday’s Dow gain was the largest ever on a points basis, much as Thursday, Monday and Wednesday, respectively, had delivered the blue-chip index’s largest, second largest and third largest one-day point declines.

Friday’s rally in U.S. stocks nearly recovered losses suffered a day earlier, when the market saw its worst day on a percentage-loss basis since the Black Monday crash of 198. The Dow is down about 20% from its record high. That puts it in a bear market.

‘[W]e can all agree that panic infiltrated various aspects of our lives the last few days.’

Frank Cappelleri, Instinet

Friday’s gains followed a week of unrivaled volatility across markets that elicited numerous references to the financial crisis 12 years ago and the 1987 crash, except in some ways this crisis has felt more intense and unsettling to market participants.

“Investor psychology only is clear in hindsight, but we can all agree that panic infiltrated various aspects of our lives the last few days,” wrote Frank Cappelleri, executive director of Instinet, in a research note to clients on Friday.

Indeed, all three stock indexes tumbled into bear-market territory from record heights at their fastest clips in history.

Check out the Trump tweet here:

The catalyst presumably has been COVID-19, the infectious disease that was first identified in Wuhan, China, in December and has rapidly spread to more than 100 countries, infected 147,000 and claimed 5,500 lives so far, according to Johns Hopkins University.

Friday’s rally came after Trump declared a national emergency, opening up access to $50 billion in funding for states and localities to combat the coronavirus pandemic, while saying that the country was ramping up testing and expanding the ability of hospitals and doctors to provide treatments for the pandemic disease.

Focusing on Friday’s burst higher for risk assets, however, might be a mistake against the backdrop of the week’s turbulent nature. The Dow, for example, registered swings of at least 1,000 points in the week’s five consecutive sessions. Put another way, the Dow booked moves of roughly 5% or better for every trading session of the entire week.

Date Dow’s point change from March 9-13 Dow’s % change
March 13 1,985 9.36
March 12 -2,352.60 -9.99
March 11 -1,464.94 -5.86
March 10 -1,167.14 4.89
March 9 -2,013 -7.79

Amid those monster moves the blue-chip index saw a swift end put to the longest-running bull market in history, which, perhaps ironically, turned 11 on Monday and was effectively dead by Wednesday, as the World Health Organization elevated to pandemic status the outbreak of the disease spread by the novel coronavirus SARS COV-2.

And one measure of implied volatility on Wall Street, the Cboe Volatility Index

VIX, -23.37%

, saw an intraday reading on Friday that was its highest since 2008 — a period that saw it register its record level of around 80. The index, known colloquially as the “fear gauge,” has a historic average reading of 19 or 20.

Another measure of market fear, CNN’s Fear/Greed Index, hit 2 on a scale of 100, its lowest reading in its history, with lower readings indicating more extreme fear.

The week also was marked by a seizing up of the $15 trillion Treasury market, which resulted in the Federal Reserve’s intervening. The central bank took steps to stem what it described a “unusual disruptions” in the market for U.S. government debt by injecting some $1.5 trillion into Wall Street’s key funding markets.

The rate-setting body at the Fed, the Federal Open Market Committee, is now expected to cut the federal funds rates by a full percentage point on Wednesday, March 18, at the conclusion of its two-day policy meeting. That on the heels of an emergency half-percentage-point rate cut on March 3. That first intermeeting interest-rate cut in 12 years put the target rate in a range between 1% and 1.25%.

Further action is expected from monetary-policy makers and elsewhere in government as the world attempts to curtail the substantial economic damage already being done by the coronavirus pandemic

Read: Fed seen cutting interest rates to 0% soon in bid to help weather coronavirus storm

Friday’s gains, while, of course, preferable to the opposite by anyone not betting against the market, are seen by some market experts as potentially more indicative of a still-lurking bear than an all-clear signal.

Market Extra: Wall Street fears ‘flashbacks to 2008’ with forced selling in $9 trillion U.S. corporate bond market

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Out-Of-Sample Risk Is (Always) The Biggest Threat To Expectations

In the 1974 film “Chinatown,” Noah Cross tells Jake Gittes, the nosy detective: “You may think you know what you’re dealing with, but believe me, you don’t.” The advice isn’t out of line for investors, portfolio managers and economists who’ve studied economic and market history and assume that the future will play out with similar twists and turns by dropping robust signals ahead of the next crisis.

Case in point: the current blowback triggered by the coronavirus. Let’s start with the economy. At this point, it’s unclear if the moderate expansion that prevails (based on data published to date) will continue. But let’s assume the US falls into recession at some point in the near future, a forecast that’s gaining traction among analysts. If a coronavirus-triggered downturn is fate, the shift could be one of the more rapid changes in the macro trend in history.

Consider that recent economic indicators are still reflecting that the moderate pace of growth reported in last year’s fourth quarter remains on track to continue in Q1. Payrolls data for February, for instance, suggests that forward momentum remains solid. The big picture trend, not surprisingly, remains upbeat, based on using the latest numbers to anticipate the near-term outlook. The Atlanta Fed’s GDPNow model, for example, was especially upbeat in the March 6 update: output is expected to rise 3.1% in the first three months of this year, a solid acceleration in growth from Q4’s 2.1% gain.

Other nowcasting models are projecting softer growth, but overall most models are still pointing to an ongoing expansion in Q1 that will sidestep recession.

The question is whether the coronavirus represents an exogenous shock that will derail the macro trend? “We’ve reached the tipping point where things are feeding off of each other,” advises Julia Coronado, president of MacroPolicy Perspectives. “We’re going to lose a chunk of activity and then we’ll grow out of it. That’s the good news. But are we going to boom out of it or crawl out of it? Crawling is looking more likely.”

The stock market in the throes of a sudden wave of discounting softer and perhaps negative growth in the near term. The rapid fall from grace is among the sharpest reversals on record. A few weeks ago (Feb. 19), the S&P 500 closed at a record high. As of yesterday (Mar. 9), the S&P is down nearly 19% from that peak – a stunning reversal of fortunes in just 13 trading sessions.

When the S&P last month first posted a 10% drawdown in the current selling wave, the decline marked the fastest 10% correction on record.

To be fair, there have been warning signs for the economy and the market all along, including an inverted Treasury yield curve (a widely respected warning for the economy) and a stock market that, until recently, seemed to defy gravity and prudent valuations with non-stop exuberance. There are, of course, always warning signs in some corner or another and so the challenge was deciding if limited threats were turning into a larger problem. The answer, we know now, is “yes,” but for reasons few of us expected.

Before the coronavirus become everyone’s obsession, as recently as a month ago, you could be forgiven for thinking that the economic risk remained low and the US stock market’s biggest threat was a garden-variety correction. A careful study of past crises, recessions and market corrections offered minimal reasons to think otherwise. The in-sample testing, in other words, offered convincing support for expecting that risk in the broad sense was low.

But the economic gods and Mr. Market seem to be forever conspiring to fool the crowd by coming up with new ways to deliver unexpected confusion and chaos. If a coronavirus-based bear market and recession is upon us, the decline and fall are destined to be the new poster child for out-of-sample risk.

How many robust modeling efforts and careful reviews of history have been torn asunder in the current crisis? The failure rate is surely high. Par for the course. Just as generals are always fighting the last war, investors and economists are prone to relying on the historical record to divine the future and assess the state of risk. But the future rarely unfolds as expected.
We can debate if the coronavirus is a black swan risk (an unforeseeable event) or a gray rhino (an obvious but neglected risk). Whatever you call it, the current crisis has caught many if not most of the world’s governments, policymakers, economists and investors by surprise. In the process, many if not most models that appeared robust have been damaged, perhaps fatally in some cases.

A familiar theme, however, remains intact: heavily if not blindly relying on history for guidance on the future has hit a wall – again. That crunching sound you hear is the breaking of elegant in-sample modeling that’s groaning under the weight of out-of-sample results.

The future remains uncertain and so there are no formal solutions to out-of-sample risk. But there are degrees of oversight and error and some of the more egregious blunders are currently in the process of revealing themselves.

The lesson: we can all do better and presumably some of us will, in part through studying how the coronavirus blowback surprised us. But human nature being what it is, most of the lessons will be ignored.

Perhaps the bigger danger is that some of us will continue to assume that working harder and going deeper with in-sample testing will remove all the uncertainty and risk that awaits in the out-of-sample future.

Don’t fall into that trap. We can start with maintaining a bit of humility when it comes to modeling the markets and the economy. But as the world has rediscovered (again), absorbing this wisdom is, for most of us, a cyclical rather than a cumulative process.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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Oil prices stage partial rebound after biggest drop since 1991

Crude oil prices staged a rebound on Tuesday after President Donald Trump said that the White House and Congress would meet to consider a ‘very substantial’ economic relief measures to combat the coronavirus, which may include a payroll tax cut.

West Texas Intermediate crude for April delivery

rose $2.26, or 7%, or $33.38 a barrel. On Monday, oil fell $10.15, or 24.6%, to end at $31.13, after briefly trading below $29 in early trade. May Brent crude
the global benchmark, rose $2.52, or 7.3%, to $36.88 a barrel. On Monday, the contract plunged $10.91, or 24.1%, to settle at $34.36 a barrel on ICE Europe.

Monday’s percentage declines for both grades were the largest since January 1991, during the Gulf War. Tumbling oil prices came after Saudi Arabia over the weekend cut its export prices for crude, in a move many saw directed at Russia.

The Organization of the Petroleum Exporting Countries had been pushing for members and Russia-led allies to deepen existing cuts by 1.5 million barrels a day. But Moscow rejected that move in talks that collapsed Friday without an agreement, meaning existing curbs will expire at the end of March and OPEC members and nonmembers can pump freely.

The potential of a Saudi-Russia price war combined with concerns over the spreading coronavirus in the U.S. to trigger chaotic financial markets on Monday. But oil rebounded Tuesday, with Asian marketsrising and European stocks pointing to gains, alongside a 700-point gain for Dow futures after Trump came forward with the outline of a relief plan.

Also helping risk appetite was a visit by Chinese President Xi Jinping on Tuesday to Wuhan, believed to be at the epicenter of the coronavirus and hardest hit by the epidemic.

On Monday, the Dow

closed down 2,013.76 points, or 7.8%, at 23,851.02, while the S&P 500

fell 225.81 points, or 7.6%, to end at 2,746.56, near its session low. The Nasdaq Composite Index

plunged 624.94 points, or 7.3%, to finish at 7,950.68.

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