Being Street Smart
Is a 350 Point
One-Day Move
Important These Days?
By Sy Harding, editor
Street Smart Report Online
A 350 point one-day gain years ago when the Dow was at maybe 2500 would have been newsworthy. But is a 350 point one-day gain (or loss) at all important with the Dow hovering around 8000? It sure doesn't look like much on a chart. Yet yesterday's gain of 346 points by the Dow was reported in exciting tones on the evening news last night. This morning's newspaper headlines are more of the same.
The
media has to spin stories for maximum drama and excitement, and
that includes the way the market's big one-day point moves of
recent years are reported as history in the making. That in turn
leads to the remarks frequently made on the TV financial shows
about how supposedly 80% of the market's largest one-day moves
ever (in both directions) have been made just since 1998.
Unfortunately, at a
time when there are more than enough reasons for investors to
be nervous and skittish about the market, such observations increase
the fears that perhaps the market is best ignored until it returns
to normal.
So let's be street
smart and look at the facts rather than the hype.
When the Dow was
last at 1000 (in the early 1980s) a 200 point one-day gain would
have indeed been historical, having never even been approached.
However, by the time the Dow reached 5,000 (in 1995) one-day
gains of 200 points had become fairly frequent. And by the time
the Dow approached 10,000 in 1998, one-day gains of 200 points
had become commonplace, sometimes taking place several times
a week.
Had the market become
more volatile? Of course not. When the Dow was at 1000, a 200-point
one-day gain would have amounted to 20%. When the Dow was at
5,000 a 200 point gain was only 4%. And when the Dow reached
10,000 a 200 point gain was only 2%.
So
yes, on a points basis most of the market's big one-day point
gains have taken place since 1998. But to talk about 350 point
gains as being of historical significance is totally misleading
to the many new investors of recent years who may not stop to
think of the difference between points moves and percentage moves,
and so are overly affected by greed or fear by the sensationalist
reporting of big one-day moves.
The following table
puts the market's one-day gains of recent years in perspective.
| Largest One-Day Percentage Gains | |||||
| Ranking | Date | Dow's close | Points Gain for the Day |
Percentage Gain |
Equivalent
points gain with Dow at 10,000 |
| 1 | 10-6-1931 | 99.3 | 12.8 | + 14.9% | 1490 |
| 2 | 10-30-1929 | 258.5 | 28.4 | + 12.3% | 1230 |
| 3 | 9-21-1932 | 75.2 | 7.7 | + 11.4% | 1140 |
| 4 | 10-21-1987 | 2018 | 187 | + 10.2% | 1020 |
| 5 | 8-3-1932 | 58.2 | 5.1 | + 9.52% | 952 |
| 6 | 2-11-1932 | 78.6 | 6.8 | + 9.47% | 947 |
| 7 | 11-14-1929 | 217.3 | 18.6 | + 9.4% | 940 |
| 8 | 12-18-1931 | 80.7 | 6.9 | + 9.3% | 930 |
| 9 | 2-13-1932 | 85.8 | 7.2 | + 9.2% | 920 |
| 10 | 5-6-1932 | 59.0 | 4.9 | +9.1% | 910 |
| 11 | 4-19-1933 | 68.3 | 5.7 | + 9.0% | 900 |
| 12 | 10-8-1931 | 105.8 | 8.5 | + 8.7% | 870 |
| 13 | 6-10-1932 | 48.9 | 3.6 | + 8.0% | 800 |
| 14 | 9-5-1939 | 148.1 | 10.0 | + 7.3% | 730 |
| 15 | 6-3-1931 | 130.4 | 8.7 | + 7.12% | 712 |
| 16 | 1-6-1932 | 76.3 | 5.1 | + 7.12% | 712 |
| 17 | 10-14-1932 | 63.8 | 4.1 | + 6.8% | 680 |
| 18 | 3-15-1907 | 81.3 | 5.1 | + 6.7% | 670 |
| 19 | 6-20-1931 | 139 | 8.6 | + 6.64% | 664 |
| 20 | 7-24-1933 | 94.3 | 5.9 | + 6.63% | 663 |
That
is quite a different picture than the media paints. Note that
not one of the 20 top-ranked big one-day market gains took place
in recent years at all. In fact the only one that took place
since World War II was in 1987, fifteen years ago. Note
in the far right column how large a one-day gain would have had
to be with the Dow in the vicinity of 10,000 to even make the
top-20 list. More than 600 points.
As the table shows
the biggest one-day gain on a percentage basis, which is all
that counts, was the 14.9% gain in 1931. Yet the points gain
that day was only 12.8 points. To make a one-day points gain
of 14.9% when the Dow was at 10,000 would have taken a one-day
gain of 1490 points.
The largest one-day
gains since 1998 were 499 points on 3-16-2000, 488 points on
7-24-2002; 447 points on 7-29-2002; 433 points on 4-18-2001,
and 402 points on 4-5-2001. None came close to making the Top-20
list, let alone setting records. So keep that in mind when the
media talks of the "5th biggest points gain ever",
or the "3rd biggest points gain ever". Unless
it's large in terms of a percentage move it doesn't deserve mentioning.
It's also interesting
to note that not only did the majority of big one-day gains not
take place in recent years, as the media's attention to "points
gained" would have you believe, but took place during the
early 1930s, during the Great Depression, and in the aftermath
of the 1929 bear market, a period when investors had sworn off
the damned market for good, or were at least waiting for the
economy and the stock market to return to normal.
Let's have a similar
look at the market's history of the largest one-day losses.
| Largest One-Day Percentage Losses | |||||
| Ranking | Date | Dow's Close | Points Loss for the Day |
Percentage Loss |
Equivalent Points Loss with Dow at 10,000 |
| 1 | 10-19-1987 | 1738 | - 508 | - 22.6% | 2260 |
| 2 | 10-28-1929 | 260.6 | - 38.3 | - 12.8% | 1280 |
| 3 | 10-29-1929 | 230.1 | - 30.6 | - 11.7% | 1170 |
| 4 | 11-6-1929 | 232 | - 25.5 | - 9.9% | 990 |
| 5 | 12-18-1899 | 58.3 | - 5.6 | - 8.7% | 870 |
| 6 | 8-12-1932 | 63.1 | - 5.8 | - 8.4% | 840 |
| 7 | 3-14-1907 | 76.2 | - 6.9 | - 8.3% | 830 |
| 8 | 10-26-1987 | 1794 | - 157 | - 8% | 800 |
| 9 | 7-21-1933 | 88.7 | - 7.6 | - 7.8% | 780 |
| 10 | 10-18-1937 | 125.7 | - 10.6 | - 7.7% | 770 |
| 11 | 2-1-1917 | 88.5 | - 6.9 | - 7.2% | 720 |
| 12 | 10-27-1997 | 7161 | - 554 | - 7.18% | 718 |
| 13 | 10-5-1932 | 66.1 | - 5.1 | - 7.15% | 715 |
| 14 | 9-17-2001* | 8920 | - 685 | - 7.1% | 710 |
| 15 | 9-24-1931 | 107.8 | - 8.2 | - 7.07% | 707 |
| 16 | 7-20-1933 | 96.3 | -7.3 | - 7.07% | 707 |
| 17 | 7-30-1914 | 71.4 | - 5.3 | - 6.91% | 691 |
| 18 | 10-13-1989 | 2569 | - 190 | - 6.91% | 691 |
| 19 | 1-8-1988 | 1911 | -140.6 | - 6.85% | 685 |
| 20 | 11-11-1929 | 220.4 | - 16.1 | - 6.82% | 682 |
* Needs an asterisk as it was the day the market re-opened after being closed for a week after the terrorist attacks last September. A one-day decline but a week's pent-up reaction.
It's
been a similar situation with the big one-day losses. To
hear the media tell it in their panic tones, the largest one-day
losses during the current bear market have been of all-time record
proportions.
But once again that
assessment is based solely on meaningless "points moves".
Only one of the market's 20 largest one-day losses took place
in the last three years of bear market. And even that is
suspect as far as being counted as a one-day loss, since it was
the mini-crash on 9-17-2001 when the market re-opened after being
closed for a week as a result of the terrorist attacks of 9-11.
Only one additional loss in the last 12 years made the list (at
#12), the mini-crash of 10-27-97. Prior to that the most recent
were in the late 1980s.
The biggest one-day
Dow loss ever recorded was the 1987 crash of 22.6%. (The crash
of 1929 was larger but took place over two days, taking the #2
and #3 spots on the list). That largest one-day loss of 22.6%
was a loss of 508 points at the Dow's level at the time. To make
a one-day points loss of 14.9% when the Dow is at 8,000 would
take a one-day loss of 1190 points.
The largest one-day
losses in the bear market other than that of 9-17-2001 were;
616 points on 4-14-2000; 436 points on 3-11-2001; 390 points
on 7-19-2002; and 382 points on 9-20-2001.
The last few years
have definitely not been host to the market's biggest one-day
moves in either direction.
But of even more
importance, a study of the market's direction following big one-day
moves in either direction, (like the 1999 study titled 'The Meaning
of Big One-Day Market Moves' in our Library section), shows that
such moves in either direction are usually reversed within days,
and so have no predictive power, other than predicting that anyone
relying solely on them for market-timing are going to lose much
more often than they win.
Editor's Note:
Sy Harding is president of Asset Management Research Corp., 169
Daniel Webster Hwy, Suite 11, Meredith, NH 03253, publisher of
The Street Smart Report, 1 year, 17 issues, $250 (now
in its 15th year of exceptional market research for professionals
and serious investors) and The Street Smart Report Online
at www.StreetSmartReport.com, 1 year, $225. Mr. Harding has consistently
ranked in the Top Ten Timers by Timer Digest for years.
In 1999, he authored the book, Riding the Bear How
to Prosper in the Coming Bear Market, $12.95 (the Dow topped
out just 9 months later). In Riding The Bear, Mr. Harding explains
not only bear markets, but how bull and bear markets get
started and end; how public investors can break their
pattern of only becoming interested in bull markets in their
final stage, get killed, and then are too scared when the next
bull market begins. He explains in plain English how the market
reacts, how cycles work, and how to take advantage of them to
hold onto your bull market profits and actually increase them
during a bear market. Harding also explains the Seasonal Timing
System in detail. This highly recommended book is FREE as a bonus
with a subscription to Sy Harding's Street Smart Report.
