On Thursday, the Dow went up 200 points, nobody made a fuss. The Dow went down on Friday and everybody starts asking question. I am not saying its not important, but markets do go up and down. We have to look at the actual catalyst that caused the down movement. Is it part and parcel of trading volatility or something bigger and more sinister? There is nothing sinister, its just part and parcel of a healthy robust market. The folks at Bespoke looked at the number of times the Dow went down by more than 2% on a Friday. The following Mondays saw an average decline of 0.73%, nothing much to shout about. Markets were sold down on lower consumer sentiment, apparently on the ending of the cash for clunkers program. It will take a lot more to drag down this market - e.g. another major bank failing, otherwise, it should be business as usual. The key thing from the Bespoke table, if you noticed, was that the last two Mondays saw losses of more than 2% as well - the thing to remember is that both those days were right in the midst of the financial turmoil, and during a period when VIX was rattling at very high levels. The same table can yield one level of information for some but if you look at things with a critical eye it will reveal even more information.
Bespoke: What an ugly day. Today marked the 142nd time since 1900 that the Dow went down at least 2% on a Friday (when the following Monday was not a holiday). On the following Monday, the Dow has averaged a decline of 0.31%, with positive returns 49% of the time. Since the bear market that started in October 2007, this has happened 6 other times (see table at right). On the following Monday, the Dow has gone down 4 out of 6 times for an average decline of 0.73%. The last two times we've had a >2% decline on Friday, the following Monday has lost 2.42% and 2.63%. Let's hope Monday's trade is a little better than that!
p/s photo: Susu (seriously... an up and coming Thai-Chinese singer)