Heavy volatility usually means Sell

The last four days have involved huge price swings in the major indexes.  50 point moves are par for the course over the last four trading days.  Not surprisingly, history would suggest that the big single day losses tend to correlate closely with bear markets.  However, dramatic up days have a similarly strong correlation with bear markets.  Excluding the gains from Tuesday (9th), and Thursday (not on the list or chart, but ‘s gain, 15 of the top 19 singe day point gains came during the fierce declines of 2000-01 and 2008.

Here is a list of the top 20 biggest daily gains in S&P history (taken from here):

 Rank
         Date
      Close
  Net Change
  % Change
1 2008-10-28 940.51 +91.59 +10.79
2 2008-10-13 1003.35 +90.6 +9.93
3 2000-03-16 1458.47 +66.32 +4.76
4 2001-01-03 1347.56 +64.29 +5.01
5 2008-11-13 911.29 +58.16 +6.82
6 2008-03-18 1330.74 +53.58 +4.20
7 2000-12-05 1376.54 +51.57 +3.89
8 2008-09-30 1164.74 +50.96 +4.58
9 2008-11-24 851.81 +50.61 +6.32
10 1998-09-08 1023.46 +49.57 +5.09
11 2008-09-18 1206.51 +49.43 +4.27
12 2001-04-05 1151.44 +48.19 +4.37
13 2000-04-25 1477.44 +47.58 +3.33
14 2000-10-19 1388.76 +46.63 +3.47
15 2001-04-18 1238.16 +46.35 +3.89
16 2008-03-11 1320.65 +46.25 +3.63
17 2002-07-29 898.96 +46.12 +5.41
18 1999-10-28 1342.44 +45.73 +3.53
19 2002-07-24 775.68 +45.72 +5.73
20 2000-04-17 1401.44 +44.88

+3.31



As you can see, the great majority took place as reflexive rallies in the midst of larger decline.  However, there are a few cases where a big rally served notice of gains to come.  Though the overwhelming majority of these days took place in the midst of falling markets, in 9 of the 19 cases (excluding Tuesday), the big day kicked off a rally that last at least a week or two and provided a decent trading opportunity.

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