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Tackle Today: Bullish days in Bear Markets

March 17, 2020

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What we know about BIG days in the market

The Volatility Index has hit record highs recently.  When the VIX rallies, it’s a reflection of the underlying risk in the market and increasing cost of options on the S&P 500 which is a benchmark index.  But it doesn’t mean that every day will be a limit down day.  In fact, some of the biggest moves in Stock Market history – both to the upside and downside – occur during volatile times. 

Consider this, the 10 largest positive percentage changes on the Dow Jones Industrial Average in a single trading day occurred on the following days:

  • 3/15/1933 +15.34%
  • 10/6/1931 +12.86%
  • 10/30/1929 +12.34%
  • 9/21/1932 +11.36%
  • 10/13/2008 +11.08%
  • 10/28/2008 +10.88%
  • 10/21/1987 +10.15%
  • 08/03/1932 +9.52%
  • 02/01/1932 +9.47%
  • 03/13/2020 +9.36%

Yes, last Friday made the top ten, just by a hair, coming in at +9.36%.  But, if you look at the other date ranges, you’ll see 2008, 1987, the early ‘30’s and 1929.  What do those periods have in common?  They were times when the stock markets were in some of their worst bearish selloffs ever recorded. 

With increasing volatility, you will see some BIG red candles, like yesterdays limit-down affair.  But you will also see the occasional BIG green candle in snap back fashion.  As a trader, you should prepare for the wild ride and plan accordingly.  This feels like a market that on ‘Any given day’ can either sell tremendously or buy tremendously.  Be aware of it, and don’t over analyze the day to day action in a market that is crashing.  Build a plan that first hedges and protects yourself from the wild ride, and then secondly can take advantage of it.

Chart of the Day

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Video of the Day

Understanding Implied Volatility

When the VIX spikes, the assumed risk goes up, but that’s not just on one side of price action. Learn how to read Implied Volatility in this video.

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