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A New Market Dynamic

On Monday, May 6, 2019, the S&P 500 opened 1.25% lower from the close of the previous week but rebounded to close down only 0.45%.  This price action appears to be a new market dynamic.

The S&P 500 daily chart since 1970 shows in the first pane the occurrences of lower openings of more than 1% and in the second pane the occurrences of those lower openings of more than 1% that were followed by a rebound of more than 0.5% from the open.

There are 17 occurrences of lower openings of more than 1% and only 7 occurrences of lower openings of more than 1% that were followed by a rebound of more than 0.5% from the open.

More importantly, all the occurrences of lower openings of more than 1% that were followed by a rebound of more than 0.5% from the open are after January 2018. This price action appears to be a new dynamic. The causes are difficult to identify but possibly one reason is the conviction that the U.S. stock market is on a strong uptrend and downside risks are regulated by the central bank.

The sample of this new dynamic is still small but the development is interesting.

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