The stock market tanked on Thursday (-2.5%) and Friday (-2%). This is rare. Most of the “down on Thursday and Friday” historical cases saw the S&P fall a little on Thursday and accelerate the decline in Friday.
Nevertheless, this is a bearish sign for next Monday but a short-medium term bullish signal for the stock market. Here’s what happens next when the stock market falls more than 2% on Thursday and on Friday.
Here are the historical cases.
Let’s look at these cases in detail.
August 21, 2015
This occurred in a “significant correction”. The S&P crashed the following Monday, which marked the 1st low in the “significant correction”.
January 30, 2009
The S&P made a marginal new low the next Monday. It then bounced for a week before making new lows over the next 4 weeks.
This case doesn’t apply to today because we are not in a bear market or a recession.
July 19, 2007
The S&P 500 made a marginal new low on Monday. It then rallied for 1 week before making marginal new lows over the next week. That marked the bottom of this “small correction”.
October 16, 1987
This occurred on the Friday before the infamous October 19, 1987 crash. That crashed marked the bottom of the S&P 500’s “significant correction”.
September 13, 1974
The S&P made a marginal new low the next Monday. It then bounced for a week and then fell for 2 weeks, which marked the bottom of the S&P 500’s bear market.
This historical case doesn’t apply to today. It happened within the context of a bear market and recession. We are neither in a bear market nor recession today.
When the stock market crashes more than 2% on Thursday and Friday: