The Explosive Moves off Bottoms study last night identified 10 instances where new lows were followed by 3.5% up days. The 5/27/70 instance continued higher without a short-term pullback. The 7/5/02 instance dropped lower and didn’t bounce for a long time. The other 8 instances all experienced a pullback within a few days before heading higher. The average pullback of those 8 instances was 2.6%. So the size of the pullback today isn’t alarming. I just wasn’t expecting it to happen all in one day.
I ran a test to see other times where the S&P 500 has risen 4% or more one day and then dropped 2.4% or more the day after. Being near a market low was not a requirement. Since 1960 it has only happened twice.
It’s difficult to extrapolate much from just two instances, but I found it interesting none the less that the only other times this has occurred was near major market bottoms. One caveat is that today’s decline came on higher volume while in 1987 and 2002 it came on lower volume. Hopefully today will keep enough people on the bearish side that the rally can take hold. Investors Intelligence saw a slight drop in bulls to 30.9% and a slight rise in bears to 44.7% making that index even more extreme. Put/call ratios remain high and the VIX headed back up close to 30. My intermediate-term bullish bias has not changed.