On an Average Day, Nothing Happens

Fundamentals change slowly. That’s why the stock market is little changed most days. But in the long run, those boring days add up to big gains.

I’m hearing a lot of analysts say: “The stock market is quiet.” Then they point to obscure data as proof, such as that the Dow Jones Industrial Average hasn’t closed with more than a 1% change in 17 days.

When I hear something like this, I wonder if it’s important. To decide, I need to know what an average day is.

Well, in the 29,349 trading days since January 1, 1900, the average day has been boring. The Dow closed higher 54.1% of the time. The average one-day change was a gain of 0.03%.

The chart below sorts the Dow’s daily changes into bins. The height of a bar shows how often a day’s action ends up in the bin. As you can see, the most common daily change is a small loss of up to 0.25%.

Fundamentals change slowly. That’s why the stock market is little changed most days. But in the long run, those boring days add up to big gains.

The real action is in what statisticians call “outliers.” These are the few days that are far from average. The largest one-day gain was more than 15%, while the biggest daily loss was more than 22%.

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That big gain came in 1933, after Franklin D. Roosevelt was sworn in as president. You may know that the one-day loss was the 1987 crash. Neither event can be explained by the fundamentals.

Fundamentals change slowly. That’s why the stock market is little changed most days.

In the long run, those boring days add up to big gains. We just need to be patient and accept that nothing happens most of the time.

We can use this time to build our portfolios. Then we’ll be ready for the next big move, whenever it comes.

Regards,

Michael Carr, CMT
Editor, Peak Velocity Trader