Key level for S&P 500 is 2,793, which is 50% retrace of decline. 50% confirmed bottoms in 1987, 2002 and 2009. Remember market symmetry Array ( [cookie] => 80a3af-34a1ae-37e696-a1190c-19ce21 [current_usage] => 2 [max_usage] => 2 [current_usage_crypto] => 2 [max_usage_crypto] => 2 [lock] => 1 [message] => [error] => [active_member] => 1 [subscriber] => 0 [role] => fsi_macro [visitor_id] => 591470 [reason] => [method] => ) 1
An impressive rally has been underway for the past few days, bringing gains to +26% from the March 23, 2020 lows. But given the uncertainty around the duration and magnitude of the economic fallout and inconclusive healthcare crisis visibility, it is natural for most of our clients to be wary.
So the question we would like to address, is what level does the S&P 500 need to reach to confirm a bottom is in place?
The simple way to answer this, is to look at the declines of 1987, 2002-2003 and 2008-2009 and ask, where did the "false bottom rally" fail?
- Nov 1987 failed at 33% retrace
- Sep 2002 failed at 33% retrace
- Dec 2008 failed at 24% retrace
The upper threshold is a 33% retrace.
In the current S&P 500 today, 33% ~2,600. 24% is 2,475. The S&P is at 2,712.98
- So the S&P 500 has moved beyond the upper ranges of the crashes of 1987, 2002-2003 and 2008-2009.
Figure: 2020 S&P 500 plus the retrace rallies of other failed bottoms marked.
POINT #1: 50% retrace is conclusive of the bottom is in...But how do we know if the bottom is actually in? We think the simplest rule of thumb is retracing 50% of the losses. Below, we show when the 50% retrace was reached:
- Post 1987, it was Sept 1988
- Post 2002, it was Dec 2003
- Post 2008, it was Dec 2009
Notice the pattern?
Well into recovery, a 50% retrace confirms the low. Thus, the S&P 500 2,793 is a key level. That is ~100 points above here. So we have not breached that level.
Figure: 1987 bottom, failed rally and confirmed recovery
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