As stock market investors have learned over the past week, it’s tricky to time the next move in the Dow Jones Industrial Average after a big selloff. Buyers stepped in Monday after the 900-point Nov. 26 dive, but there were signs of weakness. Stocks tanked Tuesday, soared back Wednesday before whipsawing into the close, and then had a huge day on Thursday before ending the week’s trading with another loss for the Dow.

“Always tricky,” says Keith Lerner, co-chief investment officer and chief market strategist at Truist.

Looking to market history can help.

Some are betting on the Santa Claus rally for a big December, even as clarity on the omicron variant threat remains lacking and cases spread, including in the U.S. And even after a week in which Fed Chair Jerome Powell surprised the market — with timing that was “curious,” according to Mohamed El-Erian — saying the Fed’s taper may be accelerated and inflation should no longer be described as “transitory.”

Traders work in the S&P 500 options pit at Cboe Global Markets Inc. in Chicago, Illinois.

Daniel Acker | Bloomberg | Getty Images

Lerner is looking to market history, and he sees an environment in which the patient investors will be ahead, if not in December, a year from now.

“We want at least a 12-month trend, because even if your entry point is not exactly right, you have greater chances of success in that timeframe,” he said. 

The “Black Friday” Nov. 26 spike in the VIX volatility index of 54% was among the five biggest single-day volatility moves in the past three decades. Since 1990, there have been 19 trading sessions during which the VIX spiked by 40% or more. In 18 of those 19 instances, or 95% of the time, the S&P 500 Index was higher one-year later, and the gains were large — an average of 20%.

With the U.S. market still up more than 20% this year even after the recent volatility, another 20% might be aspirational. Lerner noted that before the recent market whipsaw, stocks had gained 9% since early October, and that is a negative as far as having confidence the market will move up substantially in the short-term. That implies the immediate future is “vulnerable” to more moves down.

But the more important data point is the longer-term trend in the VIX history: there isn’t any instance across the 19 biggest VIX spikes of the past three decades after which stocks weren’t positive a majority of the time one month, three months, six months, and one year later. One month later, stocks were only up an average of 1%, but were positive 70% of the time, and the …….

Source: https://www.cnbc.com/2021/12/05/market-history-says-omicron-volatility-isnt-a-reason-to-sell.html