Making (more) history

  • Rebound off March lows is S&P 500’s biggest 25-day rally in decades
  • Index has approached a key technical level
  • Key economic data on tap

The US stock market may have pulled back yesterday after hitting its highest levels since the first week of March, but before it did, the S&P 500 (SPX) padded what was already a mind-boggling record.

Just 25 trading days after closing at 2,237.40 on March 23, the SPX had rebounded more than 30% when it tagged its intraday high of 2,921.15:

Chart 1: S&P 500 (SPX), 2/12/20–4/28/20. Fib resistance and the big rebound.

Source: Power E*TRADE

To put that in perspective, not only was this the SPX’s biggest 25-day rally of the past 60 years, the next-closest competitor was a 26.7% rally in April 2009, and there have been only a dozen other times since 1960 that the index has rallied even 20% in a 25-day period.1

That means—just as with the epic sell-off that preceded it—we don’t have many historical parallels from which to draw conclusions about what the market may do next. But before delving into the information we do have, we’ll point out the chart also shows yesterday’s high was very close to the 61.8% Fibonacci retracment level of the February–March sell-off.

The recent rally brings to mind two market principles: Exceptionally large moves are prone to corrections, and the market rarely makes a significant low without testing it.

And although the SPX more or less ignored the 50% retracement, its first pullback off the March low occurred at the 38.2% retracement level, so you can bet many traders will be closely watching the index’s behavior to see evidence of more weakness around the 61.8% level.

The following chart offers some additional insight into the recent rebound. It compares the SPX’s move off the March 23 low through yesterday (green line) to its move off the November 20, 2008 low—what at the time many people probably thought could be the end of the Financial Crisis bear market, until stocks turned lower one last time before ultimately bottoming in March 2009:

Chart 2: S&P 500 (SPX) returns, 11/20/08–3/19/09 and 3/23/20–4/28/20. Rebound comparison: 2020 vs. 2008.

Source (data): Power E*TRADE

Aside from the remarkable similarity in the paths the two rebounds took in their first 10 days or so, this chart also highlights how much bigger the current rally has been, and that it’s approaching the point in time (roughly 30 days) when the November 2008–January 2009 bounce ran out of steam. (Also, more often than not, the SPX was lower two weeks after making a 25-day, 20%-or-larger rally).

This is not to say the market is destined to closely mimic its 2008–2009 path, but it is a reminder of a couple of basic market principles: Exceptionally large moves are prone to corrections (the current reversal of the coronavirus sell-off being a prime example) and, as mentioned in “Lessons from 2008,” the market rarely makes a significant low without testing it.

As a trader, part of developing a game plan is understanding the playing field. We’re on the verge of seeing some of the first key monthly and quarterly economic data (e.g., GDP today and jobs next week) that will reflect a major portion of the coronavirus lockdown. Traders trying to determine what their next play should be will want to consider how these numbers will interact with a stock market that has just made a very rare up move.

Market Mover Update: With earnings due on Friday, Chevron (CVX) closed yesterday at a seven-week high (see “Premium gusher”).  

Today’s numbers (all times ET): GDP (8:30 a.m.), Pending Home Sales Index (10 a.m.), EIA Petroleum Status Report (10:30 a.m.), FOMC announcement (2 p.m.).

Today’s earnings include: Archer Daniels Midland (ADM), Yum Brands (YUM), Boeing (BA), General Electric (GE), General Dynamics (GD), Microsoft (MSFT), Northrop Grumman (NOC), eBay (EBAY), Facebook (FB), Mastercard (MA), Qualcomm (QCOM), Tesla (TSLA), Spotify (SPOT).


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1 Reflects S&P 500 (SPX) price changes from the close of one day to the high 25 trading days later, April 30, 1957–April 28, 2020. Supporting document available upon request.

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