Two Consecutive Broad Declines: What Comes Next

We had two consecutive days on Thursday and Friday in which 70% or more of traded issues declined on the day. Since 1990 (N = 4124 trading days), that has only occurred 13 times.

The next day, the S&P 500 Index ($SPX) was up by an average .59% (9 up, 4 down)--much stronger than the average daily gain of .04% (2174 up, 1950 down) for the sample overall.

Two days later, the S&P was up by an average 1.37% (10 up, 3 down)--considerably stronger than the average two-day gain of .08% (2209 up, 1915 down) for the 1990-2006 sample.

What that tells us is that two consecutive down days of very negative breadth is a rare occurrence. It is also interesting that 7 of the 13 next day occurrences led to price changes of greater than 1%, suggesting that volatility follows broad two-day declines. Looks like it might be worth looking for buying setups on Monday and watching for a carryover of volatile action.