The market made history on Monday when it posted its largest Christmas Eve decline ever. Until this past Monday, the S&P 500 Index had never posted a greater than -1% decline on Christmas Eve in its history, and all the major market indexes posted their largest Christmas Eve declines in their history.
As I wrote over the weekend, the extreme decline we’ve seen off the peak of mid-December has put the market in a very oversold position within the context of what is the second leg down in an ongoing bear market. As things get deep, down, and very dirty, this always brings to the fore the possibility that a natural oversold reaction rally can set in at any time. That’s what we saw today, in the extreme.
The S&P 500 and the Dow Jones Industrials Index rallied furiously today with the Dow posting a 1,086.25-point rally on much higher volume. To me, the upside reaction is no surprise given the oversold condition we reached over the past few trading days, but the magnitude is without question mind-blowingly huge. Without referencing my market history sources, I’d venture to guess that today’s move is the biggest post-Christmas rally in market history, just as Monday’s move was the biggest Christmas Eve sell-off.
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