It has been an ugly start to the year, and it is a pretty good bet that 2016 will end with a significant decline. I created a composite of the S&P 500 to show the average performance of the SPX in all years that had a double digit decline dating back to 1950. As shown in the chart, the average performance (red line) indicates a 20% loss by October and an 18% loss by yearend.
There have been 11 years with double digit declines since 1950: 1957 1962 1966 1969 1973 1974 1977 2000 2001 2002 2008. That means big losses have occurred 17% of the time or one out of every six years. The last double digit loss was 2008, so we are due for another.
So far, 2016 is well below the lower standard deviation, and a reversion to the mean is likely in the next month. Any reversion to the mean should be considered as a setup to re-establish short positions.
Edited by kssmibotm, 18 January 2016 - 08:11 PM.