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Trading the Volatility

With the VIX at record levels and the Dow now down another 5%, investors are running for cover. However, there are now enough data points to begin to look at patterns on what has been happening after these big drops. Here is how the Dow has behaved in the days that follow big drops since the its peak last one year ago.

For drops of 3% or more since Oct '07
- Not counting today, happened 7 times
- on avg, up 0.9% the next day
- on avg, down -0.7% 1 week later

For drops of 2.5% or more
- Not counting today, happened 13 times
- on avg, up 0.5% the next day
- on avg, down -0.4% 1 week later

For drops of 2.0% or more
- Not counting today, happened 23 times
- on avg, up 0.5% the next day
- on avg, up 0.05% 1 week later
- on avg, down -0.4% 1 month later

The market has rebounded ~60% of the time the day after a big fall. This pattern holds, not only in the past year, but also since the Dow first began trading in 1896.

Leading the Dow to the downside today are Citigroup , Alcoa , American Express , Boeing , and GM .

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