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Nasdaq Composite’s Wild Swing Precursor to Bounce, History Shows

  • Recovery from drop of almost 5% on Monday is rare event
  • Oversold reversals came five prior times in large bear markets

The Nasdaq Composite Index’s gain on Monday after an intraday plunge of nearly 5% was only the sixth time this century that a swing of that magnitude occurred. Each instance led to a rather sharp recovery within the prevailing downtrend. 

Trading data analyzed by Bloomberg shows that in the other five sessions since 2000 that saw the Nasdaq Composite close in the green after reversing a drop exceeding 4%, the decline came to a stall and a sharp rally ensued for a few days to a few weeks.