Did We Just See A Capitulation Low?

Today was undeniably ugly with the S&P 500 down nearly 4%, the Nikkei down 4.6%, MSCI Europe down 4.7% (although in USD terms the Nikkei was down just 1.7% and MSCI Europe was down just 2.9%). More stunning, however, is the fact that US stocks were down by at least 3% on consecutive days. This is extremely rare and usually it marked a very buyable low for intermediate-term investors.

Since 1985 the S&P 500 has finished down by 3% or more on consecutive trading days on only nine occasions including today. Short-term performance following the consecutive 3% down days was fairly mixed with the 2008 instances dragging down the average, but the index was up by double digits one year late on all but one occasion in which it was up only 6%. This time could look more like 2008 with plenty volatility following this capitulation indicator, but the longer-term return average of 24% with 100% positive performance hit rate seems fairly good.

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