Despite the eye-popping volatility seen in markets, the technical outlook remains unchanged: expect markets to remain in a very choppy trading range well into 2Q as part of broader bottoming pattern for the S&P 500 Index. In this space last Friday, I highlighted the likelihood of a high risk rebound based on deeply oversold short-term trading indicators and because a variety of internal indicators were already showing signs of coming off peak levels.

For example, NYSE downside volume peaked on Friday March 12 with a secondary, lower high on Wednesday March 18, while NYSE 52-week lows peaked on Friday March 13th as did the Put-Call ratios. The ARMS trading index peaked on Monday March 16 and the VIX peaked on March 18th.

What we’ve seen is a market rally to resistance at the 200-week moving average. I wasn’t expecting a 20% bounce in three days but stocks have done so into heavy technical resistance at its 200-week simple moving average, coinciding with a Fibonacci 38% retracement of the Q1 decline. Again, equities are likely trade in a very broad, choppy trading range well into, and possibly through April, and could see a significant retracement of the past week’s bounce.

How far could markets pullback? There is no one set playbook, but a retracement of 50-62%...

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