In over 80% of the MARKET CRASHES since the Great Depression, the market has started by dropping between 20-35% somewhat quickly, and then it bounced back up and recovered a certain % of the 1st leg of the drop (this is referred to as a "Sucker Rally"). History has shown that, if the rally bounces back up and "retracks" (my word) more than 50% of the initial drop, the "Crash" is over. I call this the "50% Retracement Line"
On the other hand, if the Sucker Rally fails to bounce above the 50% Retrackment Line, the market will head back down to either (a) test the previous low, or (b) drop further to between minus 45-60% from the all-time high. We are experiencing just this at this time.
As you can see in the graph below, so far this market has followed this pattern from the initial drop of about 34%; into a Sucker Rally. The Sucker Rally is now right on (or slightly below)
what we call the "50% Retracement Line". As you can see, this market drop has moved VERY FAST since it started on 02/20/2020. But, since it got real close to the 50% Retrackment Line, it has "stalled" for seven straight days (i.e., it traded in a plus/minus 2% range). Compare this to the first seven days after 2/20/2020, where the market dropped about 15% !!!
So, where do we go from here... Let's stay alert and follow MIPS signals.
CAUTION: in this crazy market, lots of things that followed some distinct patterns in the past might not even come close to doing that in this fast moving, volatile market.
SPY YTD in 2020 through April 20th.
Paul Distefano, PhD
Founder / Developer
MIPS Timing Systems, LLC