300 Point Rally follow up

Wow, lots of interesting responses from yesterday’s 300 Point Dow Gains? During Bear Markets ONLY. I appreciate those of you who actually do a little research, and sent in some form of analysis.

Of course, as many of you pointed out, a percentage measure would be much more credible than mere numbers. I thought Rosenberg was having a little fun with it. I suspect he was pushing back against the "300 point rally? Its a bull market!" meme circulating via the usual cheerleaders. Note that he has 10-15,000 retail brokers, and when that line circulates on Bubble TV, he likely gets a lot of internal email on it.

Let’s consider Bespoke’s Analysis on the subject: They note that average returns three months after all 300+ point moves has been 0.06%, with positive returns 50% of the time.

Buying the 1997 and 1998 300+ days made you money (if you held on long enough). But as my marked up version of their chart (below) shows, every subsequent 300+ day led to an eventual lower low.




chart via Bespoke Investment Group


I sent the following questions to the Bespoke boys:

• What percentage of 300 point days had lower prices occur there after?
• What was the 300 point day to trough average percentage loss?
• How many days afterwards did the trough/low occur on average?

We’ll post their answers here later . . .


Other 300 Point Criticisms:

The 300-Point Bear Market Rally Thing

300-Point DOW Gains = Bear Market? 

A Most Unfortunate Update

Bull Markets Don’t Rally 300 Points 

300 Point Rallies are Characteristic of Bear Markets   

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What's been said:

Discussions found on the web:
  1. grumpyoldvet commented on Aug 7

    Barry…several days ago I posted the quote below from Crooks & Liars and your system kicked it out. But I’m posting it again because it’s important thant all these analysts start being held accountable for all their prognostications. These people just babble on and on without anyone ever calling them out, in the open media I mean. So here goes and hopefully this time the system does not kick it out.

    this post with Michael Hanlon in mind: C&L’s Accountability for the Punditocracy Proposal

    Here’s a few things the networks can do to clean up their act.

    1) Set up an Ombudsman with a staff for each network that isn’t an employee of their corporation and have a weekly segment devoted to policing the media. They will also be available to take complaints reported by individual citizens and investigate them thoroughly.

    2) Replay clips of each pundit when they’ve been proven wrong and let them explain their positions and why they thought they were right and ask them how they will correct their mistakes in the future.

    3) Keep track of their infractions and set up a benchmark, like a 3 strikes your out rule for pundits. When they hit the benchmark, suspend them for a period of time so they can reflect on their mistakes.

    4) When they return to work, ask them why they should be believed in the future.

    5) It would be nice if they stopped using pundits that we know have been wrong over and over again.

  2. JustinTheSkeptic commented on Aug 7

    grumpyoldvet, what!,and do away with cronyism on Wall Street? Imagine that.

  3. 12th Percentile commented on Aug 7

    The american consumer is broke. Talking about statistical noise if fun. But so are fundamentals.

    There is one way this story ends. If you are still guessing, you haven’t been paying attention.

  4. Bruce commented on Aug 7

    300 point rally huh?

    OK…but with the jump in unemployment now, and it looks like it is gathering steam, and the less than stellar results from Wal-Mart, the frugal hot spot, it looks like some of the pundits will have to rapidly recalculate the strength of the economy going forward…

    If cheap is bad and jobs are too….

    …I’m just saying…

    Bruce in Tennessee

  5. grumpyoldvet commented on Aug 7

    Justin….yeah agree. I’m just tired of all the bullshit that passes for analysis. I worked on the street for 30 years and was held accountable by my clients/bosses for things I said & did. Oh well, that’s my rant for the day…..going on to enjoy my retirement. Peace.

  6. insaneclownposse commented on Aug 7

    simply madness that anyone would consider the rally of the last few weeks the start of a new bull market. Are the following conditions conducive to the formation of a bull market:

    Oil at $120 a barrel

    Credit crisis intensifying — Big three abandoning leasing programs seems to me a horrible sign.

    Mortgage rates skyrocketing

    Housing prices accelerating their decline

    Seems like at least things should stop getting worse before we can have any sustained bull market advance. Viewing any particular number/percentage gain in a vacuum as a way to divine market direction seems like a sure fire way to get your ass handed to you.

  7. Jim Haygood commented on Aug 7

    That’s an illuminating chart. What is it really telling us?

    In the most general terms, it says that historical volatility tends to rise during bear markets, and to quickly taper off during bull markets. Thus, the remarkable run during 2003-2007, when 1% and 2% down days almost disappeared.

    BUT, the launch of a new bull market often includes a 3%-plus upmove during the early days. So selling every sharp rally works until the final time. Then the runaway freight station leaving the station crushes you to dust on the tracks.

    To research this in the most general framework, I would look for patterns in the rise and fall of historical volatility, which generally correspond with falling and rising indexes respectively. Point changes and even percentage changes will show secular drift, but changes in volatility will still move in the expected correlation with indexes.

    Of course, there remains the big asterisk of the 1930s, when huge daily moves occurred both during the 1930-32 collapse, as well as in the monstrously volatile rally of 1932-33. Selling the giant pop the day after Frank R’s “bank holiday” finished would have been a career-ending move.

  8. JC commented on Aug 7

    better add AIG to the no-short list, FAST!

  9. Baby Doomer commented on Aug 7

    Barry, this is very interesting in light of how many financial advisors dangle the argument that you have to stay in the market no matter what, since X% of the market gain is made in Y number of days, ie the big 300 point gains. This logic is false when you realize that even being in the market on those big days means you can be way down in the hole at the end of the slide.

  10. Kid Dynamite commented on Aug 7

    Barry, there’s one key point everyone seems to be ignoring here: the transition from a bull–>bear market, and vice versa. in other words, if you look at the rally from the Oct 1998 lows, through, lets say early 2001, that could be called a BULL market – which contained numerous 300 point rallies… only in hindsight, after the market eventually declined 20% from its peak did it become a “bear” market.

    said differently, if the market rallied 300 points 6 times in the next 2 months en route to a 30% gain – everyone would agree that it’s part of a BULL market rally – right?

    I love your work, and would have expected you to call out Rosenberg on this fallacial reasoning.

    and note: i’m as bearish as can be. what’s most interesting about this market is that the ponzi scheme continues: everyone keeps calling the bottom that never comes – but stocks don’t seem to mind – it seems MER and C could write down $5B every quarter for the next 5 years, even though every quarter analysts claim the writedowns will be over – as long as the companies do not become insolvent, stock optomists don’t care!

  11. Mista B commented on Aug 7

    So funny that you posted this. Just yesterday I did an analysis of percentage move days going back through 2003. I’d go back further, but the results follow the Vix close enough. I measure the absolute value of the move. (Whereas the Vix pops on big down days, in my opinion a 3% up day is just as significant given that they’re so infrequent in bull markets.) Below are the results.

    1st column = year
    2nd column = 2% move days (this includes 2% down and 2% up)
    3rd column = 3% move days (this includes 3% down and 3% up)

    2003 15 3
    2004 0 0
    2005 0 0
    2006 2 0
    2007 17 1
    2008 21 4

    The volatility is clear to see. We’ve already had more 2% and 3% moves than last year, and we’re only seven months in. 2003 was obviously a big up year coming out of the bear market, and volatility was still high, so this is by no means a perfect indicator. Overall, though, it does say to beware of clumps of big moves, either up or down. It screams of investor/trader anxiety.

  12. DL commented on Aug 7

    grumpyoldvet @ 8:02:12 AM

    Their predictions are free…

    … and worth every penny.

  13. winslow commented on Aug 7

    This is not a “typical” bear market. Anyone that states this will say anything to be proven right (Mr Kudlow). This may very well be the turning point for America. There are so many factors contributing to this downturn it is almost unbelievable. Would it be big surprise if the market moved down 50% next week. No, it’s not likely but afterward everyone will say “yes, we saw it coming”. Where are our strong leaders? Aha…we don’t have any.

  14. joe commented on Aug 7

    The last 300 point move was a 2.92% move, looking for all the 2.92% moves (daily) in the DJIA historically comes to a grand total of: 173 days.

    of those, the number of days where a lower close was made in the subsequent 60 calendar days: 153

    so about 88%, i can vary the window shorter and longer if you like.

  15. joe commented on Aug 7

    the average move from the close of the 300 point move to the lowest low over those subsequent sixty days is -7.73%

    not bad. curious what the subsequent highs looked like over that same time range.

  16. joe commented on Aug 7

    after the close of a 2.92% move, on average it took 15.73 days to reach the subsequent lowest low (over 60 day window).

  17. Jim Haygood commented on Aug 7

    Good work, Mista B. Volatility is the key, and as you point out, it is bidirectional.

    I happen to agree with Barry that March 2003 was the real bull market blastoff, although the price low was set in Oct. 2002. On the second day of that rally, 13 Mar 2003, the Dow rose +3.57%. But since it was starting with a 7-handle, in Dow points it was only +269.68, not enough to qualify for the “300-point” study.

    Yet at the 14,000 level which the Dow hit last year, a 300-point move was only +2.14%, far less than the Dow’s +3.57% launch in March 2003.

    Framing the question in terms of “300 points” is just wrong, when the Dow index nearly doubled during the bull market. (Back in the Sixties and Seventies, it would have been “30 points.”)

    And as mentioned before, bear market volatility tends to linger briefly into the blast-off phase of the next bull move. So the “sell the 300-point rallies” rule works just dandy, until it blows up in your face at the V-bottom secular trend change. Find the missing variable to tease out this vital distinction, and you can be the next Soros!

  18. Jeff commented on Aug 7

    Heading close to 300 point day down on the Dow. Is that bullish as well?

  19. Mista B commented on Aug 7


    I fully agree that the percentage move is far more relevant than the point move. It’s arguable that since 1998 or so it would be okay to look at just the point move if one were only looking at the Dow. I say this because for the most part ever since the Dow initially broke through 10,000 it has stayed there. When it dropped below, it bounced back fairly quickly. Thus a 300-point move has occurred pretty rarely. That’s really what matters, imo.

    Based on the numbers I showed, I think the number of 2% move days actually says more than the 3% move days. The 3% days are pretty rare, even in a nasty bear. The 2% days, however, rarely occur in bull markets, but they sure show up in bear markets.

    Whether one could develop a timing strategy based solely on this data is certainly up for debate. (I think you’d be likely to miss the turning points, perhaps by a wide margin.) Personally, it’s helpful to me in that it confirms my belief we’re in a bear. I prefer looking at many data sets–demographic, economic, fundamental, technical, etc.–even for my shorter-term trading strategies. Regardless, to put it mildly, the percentage-move data does say one thing: it sure is yucky out there!

  20. Jim Haygood commented on Aug 7

    Mista B,

    Your 2008 figures are of course year-to-date. Rather than annualizing them, one could take the last 12 months (Aug. ’07 thru July ’08) when the turbulence began.

    It would be interesting to compare the past 12 months to 2001 and 2002, when VXO hit its big spikes in Sep. 2001, July 2002, and Oct. 2002. VXO hasn’t spiked as high as it did in 2001-2002. But then, 2002 marked a 49% selloff in the S&P, while this bear market has seen only a 22% selloff (so far).

  21. Peter commented on Aug 7

    “Heading close to 300 point day down on the Dow. Is
    that bullish as well?”

    No, that’s “profit-taking” !

  22. The Big Picture commented on Aug 15

    300 Point Rallies: Final Point

    One final note on our prior discussions of 300 point rallies: The first firm to make note of this (as far as I can tell) was a study by Lowry’s Reports. They discovered that during the 2000-2003 bear market, there were sixteen three hundred-point up da…

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