Diary of a Financier

Attention: The correction is now average

In Capital Markets on Thu 1 Oct 2015 at 11:49

The current S&P 500 correction is average!  Actually, it’s more than average; technically, it’s extra-ordinary…

Today, the correction reached 133 days¹ since its closing high on 5/22/15 — compared to a historical average correction that lasts 118 days & a modern average of 91 daysSPX corrections & bear markets (1960-2013) (i.e. during the Great Moderation).

However, the drawdown has amounted to -12.3%, which is shy of the historical average @ -14.7% & modern average @ -17.86%.  Further, the average annual drawdown in SPX is -14.5% in that same modern era.

So, while SPX has met the test of time (i.e. duration) in this pullback, it has not met the severity (i.e. drawdown) criteria.

My base case expectation calls for a slide down to SPY’s 1st support @ 182 (-5.0% fm current).  That incremental decline would conveniently align today’s correction with historical norms in terms of severity.  In addition, seasonality has me expecting a bounce off those levels within a couple weeks (by the week of October 12).


¹Correction data count calendar days (including weekends & holidays) and SPX closing prices.



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