Global Money Trends

Staying on Top of Volatile Global Markets

Biggest One day Rallies in Dow Industrials in Q’4 of 2008 fizzled and flopped

Dec 27, 2018

     Wall Street notched its best day in 10 years on December 26, giving some post-Christmas cheer to a market that has otherwise been battered this December. The Dow Jones Industrial index jumped more than +1,000 points higher – its biggest point-gain ever — rising nearly +5% and S&P 500 index also gained +5%. The technology heavy Nasdaq led the way soaring +5.8%, or +361-points, – its best percentage advance since March 2009.

     Shares of tech giants were some of the biggest gainers during the historic session. The combined gains of Amazon (AMZN), Microsoft (MSFT), Apple (AAPL), Google (GOOGL), Facebook (FB) and Netflix (NFLX) during the session increased $242-billion in market capitalization. Amazon’s stock jumped +9.5%, snapping a four-day losing streak, after the company said it sold a record number of items this holiday season.  Retail stocks also got a +7% boost, on average, following a report that holiday spending increased the most in six years this season

     December 26’s gains lifted the S&P-500 index from the brink of what Wall Street calls a Bear market — a -20% decline from an index’s peak. A further stumble would have marked the end to the longest Bull market for stocks in modern history after nearly 10 years. The index is now down -15% since its all-time high September 20.

     Whether the Dow’s record +1,086 point surge was the result of President Trump saying that beaten down shares presented a “tremendous opportunity to buy,” or due to a major short squeeze engineered by the clandestine Plunge Protection Team <PPT> from massively oversold conditions, is irrelevant. What matters is that stocks exploded higher just as the S&P was poised to slide into its first bear market in a decade. It’s telling that the PPT came to the rescue of Wall Street and would not allow the S&P to officially enter into a Bear market.

     For bargain hunters, the PPT drew a red line in the sand with its intervention in the Dow futures market and gave an “all clear” signal to buy stocks. However, it is common knowledge on Wall Street that vicious rallies are common after sharp declines during Bear markets. In fact, much more common then than during a regular Bull market.  Bear markets always serve up some very powerful rallies that whipsaw short sellers. However, more often that not, they turn out to be suckers’ rallies that eventually fizzled out and unraveled within a few days or a few weeks.

      In fact, in eight previous bear markets the S&P 500 index <SPY> enjoyed one day rallies of > +2.5% more than 120 times as the benchmark plunged from peak to trough. From the collapse of Lehman in September 2008 to the financial crisis bottom in March 2009, the SPY rallied > +4% in a single day on 13 different occasions, but they all turned out to be suckers rallies, before the market eventually bottomed. For instance on October 13, 2008, the Dow Industrials soared +11.1% or +936-pts, and on October 28, 2008, the Dow soared +10.9% or +889-points, but both daily rallies soon fizzled out and were quickly reversed and unraveled.

     Still, with few signs that a recession is looming on the horizon, many traders are convinced that a bottom may indeed be emerging and they are taking President Trump’s advice and buying the S&P index on dips.

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