Minutes Digest for Jan 29 2021

Dean and I were going back and forth about how unusual it is to see this pattern of a big down day, up day, then another big down day. When occurring near a high, Dean found only a couple of instances dating back to 1920.

If we relax the parameters some, it triggered a few more times. Specifically, this is a pattern of a -1% loss, 0.5% gain, then -1% loss again when it originated from within 2% of an all-time high in the S&P. Further, it had to have rallied at least 10% over the past 200 days. That's a lot of conditions, which should immediately put you on guard. We wouldn't use this as a signal to actually take action, rather it's just a way to view what happened other times after a very specific set of circumstances.

The signal in 2013 didn't lead to anything nefarious. The others were a different story. When we start to see extreme volatilty following a run-up, it can sometimes (often) pierce the veil of complacency. We'll be watching closely to see if more internal sell signals begin to trigger as stocks gyrate in the coming weeks.