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Markets puked yesterday, what’s next?

The adage says that past performance is not a guarantee of future results or something like that. But the markets still follow certain patterns that tend to repeat. It is because the markets express human behavior and psychology. Even the algos that react to the events express the humans. Only much faster. They, too, are programmed by humans to do what humans would do.

Yesterday, we saw a big fall. The markets fell over 4%, which doesn’t happen every day. And if we accept that the markets do trade in certain patterns, we can look into markets’ seasonality from the past to see what may happen next. It is not guaranteed to happen, but it may give a clue of what the market participants may do next based on what the past market participants did before us.

markets in almanac

According to history, we may see positive trading after the 4% decline. S&P 500 has declined 4% or more in a single day 53 times before yesterday since 1950. The next trading day S&P was higher 35 times and lower 18. The average gain of 1.08% occurred on all up days. Based on historical performance, the odds of a gain today are 66.04%.

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