A Look at Market Performance when S&P Futures Gap Down 2%+

Looks like the short-term bearish setups noted in Thursday’s column will be
fulfilled Monday as S&P futures are down 30 points in overnight trading.
Assuming for the moment that the S&Ps open Monday’s session around current
levels or lower, that would represent better than a 2% drop from Friday’s
settlement. In the table below I’ve extracted every instance since the
inception of S&P futures in which the front-month contract opened down 2% or
more…

Front-month S&P Futures Contract Opens Down 2%+
03/17/08… S&Ps settle +1.5% from open, -0.2% intraday
01/23/08… S&Ps settle +5.4% from open, -0.2% intraday
01/22/08… S&Ps settle +3.3% from open, -0.4% intraday
07/24/02… S&Ps settle +8.5% from open, -0.6% intraday
06/26/02… S&Ps settle +2.4% from open, -0.2% intraday
09/21/01… S&Ps settle +3.5% from open, -0.1% intraday
09/17/01… S&Ps settle +0.2% from open, -2.1% intraday
03/14/01… S&Ps settle +0.3% from open, -1.0% intraday
02/16/01… S&Ps settle +0.2% from open, -0.5% intraday
09/22/00… S&Ps settle +2.1% from open, -0.0% intraday
04/27/00… S&Ps settle +1.9% from open, -0.0% intraday
03/13/00… S&Ps settle +1.4% from open, -0.0% intraday
01/13/99… S&Ps settle +1.2% from open, -1.2% intraday
10/08/98… S&Ps settle +1.6% from open, -2.6% intraday
09/21/98… S&Ps settle +2.6% from open, -0.5% intraday
09/17/98… S&Ps settle -0.2% from open, -0.6% intraday
08/23/90… S&Ps settle +0.3% from open, -0.0% intraday
08/06/90… S&Ps settle -0.1% from open, -0.3% intraday
11/03/87… S&Ps settle -0.7% from open, -4.4% intraday
10/28/87… S&Ps settle +5.1% from open, -0.9% intraday
10/26/87… S&Ps settle -3.4% from open, -4.4% intraday
10/22/87… S&Ps settle +21.0% from open, -3.5% intraday
10/19/87… S&Ps settle -23.7% from open, -25.0% intraday
06/17/82… S&Ps settle +0.0% from open, -0.3% intraday

Note the definitive tendency for the S&P to settle above the opening,
especially in recent years. Since 1990, the S&P has closed above the opening
print in virtually every case (16 out of 18 cases). That suggests big gap down
opens have increasingly meant that most of the market’s downside risk has
already been priced in. While there certainly can be intraday fluctuations, as
you’d expect, two-thirds of the time the drawdown (from the open) was limited
to 1% or less.

Categories : Archived EOD Commentary, End-of-Day Commentary

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