History says buy into Tuesday’s drop

With the Dow Jones Industrial Average down more than 200 points, investors should be buying, history shows.

Over the last three years, the SPDR S&P 500 ETF has opened with a so-called gap lower of 1 percent or more 17 times and on 12 of those days it paid to buy into that selling as the market closed higher than those early morning levels, according to Jonathan Krinsky, a chart analyst with MKM Partners.

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Recent history shows buying now is an even better bet.

“Since 2014, gap-downs have been even less bearish,” wrote Krinsky to clients. “Of the six 1 percent-plus gap-downs since 2014, only one has gone on to close lower (1/27/15). The avg. open to close performance of those six days was +0.75 percent. ”

Krinsky, while not explicitly recommending a buy at the open, notes that the S&P 500 futures are currently testing their 50-day moving average, a prime spot for a bounce.

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Said the technical analyst, “We would imagine at least an attempt at a rally from around current levels.”

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