Markets

Michael P. Regan is a Bloomberg Gadfly columnist covering equities and financial services. He has covered stocks for Bloomberg News as a columnist and editor since 2007. He previously worked for the Associated Press.

Looking for the bottom during a swoon in the stock market is always a perilous exercise. 

One place a lot of people (and computers) look to first is the most recent low point in the market, an area that may become a "support level" that they hope will stop the bleeding, at least temporarily. There's just one problem when eyeballing the 2015 low: It's not clear what exactly it was. 

It's certainly clear when the low occurred: Aug. 24. But the market was tremendously volatile that day and there were widespread delays in the opening of trading for many shares on the New York Stock Exchange.

The S&P 500 set its low for the year at 9:35 a.m., even though its level was being calculated using prices from the previous day for many of its stocks, according to a report on the session from the Securities and Exchange Commission. The main exchange-traded fund tracking the benchmark, the SPDR S&P 500 ETF Trust known by its ticker symbol SPY, set its 2015 low at 9:34 a.m.  The problem? The ETF's low was more than 2 percent below the cash index's low:

Legacy of an Ugly Day
The main ETF tracking the S&P 500 set a low more than 2 percent below the index's low on Aug. 24.
Source: Bloomberg
Note: Implied low calculated by multiplying ETF price by 10.

The SPY is one of the most-traded securities in the world, with an average of more than 200 million shares changing hands (or at least changing servers in the data centers) every day so far in 2016. A big chunk of computerized traders' profits are thought to come from arbitraging tiny discrepancies between the price of the ETF and its underlying value or the prices of futures tracking the index. As a result, the price of the ETF multiplied by 10 is usually within a few points of the S&P 500's level.  The difference between the lows in those opening minutes of Aug. 24 was much wider, more than 43 points: 

High Point for Difference in Lows
Volatile markets on Aug. 24 resulted in a 43-point difference between the low in the S&P 500 and the low implied by an ETF tracking the benchmark.
Source: Bloomberg data
Note: Implied low calculated by multiplying ETF price by 10.

This brings us to Wednesday, when the stock market once again plunged toward those lows. Both the S&P 500 itself and the SPY dipped below the August lows and reached the lowest intraday levels since February 2014 before recovering sharply. Closing prices matter a lot. And while the SPY closed above its August intraday low, the index did not close above its low.

How much does this matter? It's hard to say.  Surely, stock market investors have a lot to worry about -- from an earnings recession to credit concerns and other headaches triggered by the plunge in oil prices, to question marks about China's economy and the Federal Reserve's plans for interest rates. Still, spotting a bottom in the market is hard enough; it only gets harder when you're not even certain where exactly the last one was.  

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net