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Heller: Putting Market Volatility into Perspective

Jonathan Heller

NEW YORK ( TheStreet) -- It looks like we are in the midst of our annual market roller coaster ride, the kind that brings investors great angst, and when happening at this time of year, can put a crimp into that otherwise relaxing vacation. As a value investor I try not to pay a whole lot of attention to daily market moves, which is difficult at times because it's all anyone is talking about.

I am however, fascinated by market history, and believe it is important to review what has happened in the past from time to time because we are soon to forget. Last year, it was the 10% pullback in the S&P 500 between April 2 and June 4 that seemed to indicate we might have a very bumpy summer. It seems like ages ago now but at the time the European financial crisis was in full swing, we were just months away from an election and the employment numbers were horrible. Of course, it turned out to be a pretty good summer for the markets, and between the beginning of June, and Labor Day, the S&P 500 rose 10%. The worries were real, but the market said otherwise.

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Two years ago, between July 22 and Aug. 22, after a relatively calm 2011 up to that point, it looked a bit like 2008/2009 all over again. During those 22 trading days, the S&P 500 fell 16.5%. One of the simple ways that I judge volatility is in terms of daily movements in the S&P 500 closing price that are in excess of 1% either up or down. During the aforementioned period, the Index rose or fell at least 1% 10 times or nearly half of the trading days. What's more, during six of those days, the daily gain or loss was greater than 4%, including four consecutive days between Aug. 8 and Aug. 11. It looked, yet again, like the wheels were coming off but by the following February the S&P had regained all that was lost and more.

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But even that period pales in comparison to what happened during the fourth quarter of 2008. I am so fascinated by this period, that I've memorized the statistics. Of the 64 trading days during the quarter, the S&P 500 closed plus or minus 1% 50 days, or 78% of the time. Remarkably, there were 16 days that the index had daily moves of 5% or more. Between Nov. 19 and Nov. 24, there were four consecutive days that the index moved at least 6%.

To fully put the fourth quarter of 2008 into perspective, consider that between 1950 and 2007, a 57 year period, the S&P 500 experienced a total of 19 occurrences of daily moves in excess of 5%; we experienced 16 during a single quarter.

But the unprecedented volatility did not end there. During the first half of 2009, the S&P 500 had another 72 days that it rose or fell at least 1%. If you include the fourth quarter of 2008, of the 188 trading days over three quarters, there were 122 days of plus or minus 1% moves, or nearly 2 of every 3 days.

^SPX data by YCharts

Now, back to the present. In June, the S&P 500 has moved plus or minus 1% on six occasions in 14 trading days, and is down about 4% since Wednesday. That's child's play, so far anyway. I don't pretend to know what's coming next. There are many who believe "this time it's' different" because the Fed is signaling that it will be cutting off the funny money in the near future, and that the markets will suffer further. We'll see. The market has a mind of its own, and the shores are littered with well thought out market prognostications which didn't come true. That's one reason I don't try to predict the near-term direction of the market.

I am buckling up, however, for the ride, whatever it might be, and keeping a little powder in case Mr. Market provides a bargain or two.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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