Another Large, Low Volume Drop – Massive Edge or Statistical Anomaly?

The market has been on a roller coaster ride lately. It’s been six sessions since the initial bounce off the July lows topped out. In the last six days the S&P 500 has closed either up at least 1.25% or down at least 1.25% five times. Three times it’s been to the downside. All three times the big drops came on lower volume. As you might suspect, seeing the S&P drop 1.25% on lower volume 3 times in 6 days is a fairly rare event. Below is a summary of how the market has traded following such events:

The number of instances is too low to make much out of but the size of the returns is certainly eye-popping. An average return of over 5% in the next 7 sessions. That’s a substantial pop to say the least. For those who would like to review the dates, they are all listed below. Notice how 2002 dominated the study.

While not statistically significant, I find the results noteworthy and interesting. So to the header question: Are we looking at a massive edge or a statistical anomaly?

I’ll let you decide.