All major world equity indices are hugely negative for this year. But is it really newsworthy? Here’s S&P 500 with all the 220-day max drawdown points marked:
You would soon run out of ink if you were to write up a report every time the market dropped the most in the past year. Here’s the one for the NIFTY 50:
And just because the index dropped doesn’t mean that subsequent positive returns are around the corner. Here are the charts for subsequent 220-day returns once a 220-day max drawdown has been made:
You have to squint really hard at the charts above to make a bull case after a drawdown.
We have systematically looked at these relationships quite extensively in the past. You can find them at our Buying the Dip and Market Timing collections. You will notice that the key ingredient is patience – it takes time for the odds to work in your favor.
Code and charts are on github.
Comments are closed, but trackbacks and pingbacks are open.