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Tackle Today: The Problem of Selling on a Big Down Day

July 21, 2021

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Photo by Elisa on Unsplash.

You Risk Missing out on the Biggest Up Days


Volatility tends to cluster. Big down days (like Monday) don’t lead to peace and calm. Instead, the violence of the plunge is usually echoed by the speed of the recovery. Tuesday saw stocks come roaring back, especially in the beaten-down Russell 2000. The small-cap-laden index surged as much as 3% intraday.

But do you know who didn’t participate in the vigorous snapback?

Those who puked up their holdings during Monday’s bloodbath. History tells us that a good chunk of market returns is packed into a few sessions. And if you miss those best days, your returns take a severe haircut. See the Chart of the Day for more detail.

Because volatility clusters, the best up days don’t occur when prices are trending higher above the 50-day moving average. Instead, we see the best days usually following the worst ones. This week is a perfect example. The VIX spiked on Monday, signaling big moves to come. That volatility sliced both ways. On Monday, it cut lower. On Tuesday, it cut higher.

Here’s the takeaway for long-term stockholders. The only way to guarantee you don’t miss out on the best up days and suffer the performance haircut mentioned in the chart below is to not sell on the big down days.


Chart of the Day

What Happens if you Miss the Best Days?

Source @LizAnnSo

I’ve seen many different versions of this chart. The start date is 2000, and I don’t know the end date, but it doesn’t matter. Over this time frame (which I believe is at least a decade), buying and holding the S&P 500 netting you 6.06% annually.  If you missed the best ten days, your return got shaved to a paltry 2.44%. That’s a whole lot of gains packed into ten sessions!

Video of the Day

The Queen’s Court

In this week’s edition of the Queens Court, the coaches bring separate trading picks for Coach Emily to review including Keycorp, Pepsico, and Oracle. Will she accept the trade ideas or will she lop off the coaches heads?

Today’s line up

Traders Lounge 11 AM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day and fun in a way that only Matt and Tim can deliver.

Trade Masters 7 PM EST

Join us every Wednesday at 7 PM EST on YouTube as the Coaches go over trade ideas from the Trade Master’s crew!

Trading Justice Podcast

Trading Justice Episode 433: Market Skyline

In this episode, the coaches analyze the current market conditions across stocks, commodities, and crypto-currencies. Stocks continue to push all-time highs, as the market remains bullish. This week will be busy from a news perspective, as earnings season begins for the 2nd quarter as companies like JP Morgan, Goldman Sachs and Citigroup, and Taiwan Semiconductor report, among others. Disney had big results from its movie debut ‘Black Widow’ over the weekend and reported strong numbers in theatres as well as streaming on Disney+, and Richard Branson takes his first spaceflight on his company Virgin Galactic’s successful launch. Listen in as the coaches analyze all of the news and price action across the markets.

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