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Has The Post-Crash Rally Run Its Course?
Is the post-September rally already over…or is it just getting started? The answer likely depends on what market climate we’re in now.
Back on September 4, we wrote a piece that looked at previous market crashes similar to what unfolded in late August. Our objective was to try to ascertain any patterns that may instruct us as to what to expect going forward following the August selloff. Obviously, the word “crash” is subjective and may or may not ring true for some folks when applied to recent events (especially to those who witnessed a true crash in 1987). However, for comparison purposes, we defined it as a 10% decline in the S&P 500 within 10 days.
Under that definition, we identified 11 prior, unique occurrences going back to 1950. As we wrote in that post:
Among the 11, 2 of them – July 1974 and September 2008 – continued to cascade lower, nearly unabated, for several more months. The other 9 resulted in an initial low in relatively short order. By initial low, we mean the first step within a market bottoming process. Those 9 are the subject of today’s Chart Of The Day, and this post. These are the months containing the 9 dates:
May 1962
May 1970
October 1987
August 1998
April 2000
March 2001
September 2001
July 2002
August 2011
After examining the S&P 500′s price pattern following these dates, we concluded that:
This examination would loosely suggest that the current bottoming process (assuming we are in one) may possibly persist for another month, with a possible higher bounce along the way before a possible retest of the August 25 lows.
As it turns out, events unfolded remark close to that script. The S&P 500 did bounce into mid-September, before moving on to re-test the August lows – a process that took almost precisely one month.
Perhaps we should not be surprised that the post-crash bounce/retest scenario played out so closely to historical precedent. The reason we say that is a “crash-like” market occurrence is a highly psychological event. Thus, investors’ reactions in such scenarios will tend to be consistent across occurrences – not identical but similar. Furthermore, the crash process is a relatively contained event – time-wise – so there tends to be less variance in the general reaction throughout the process on the part of investors.
The rally subsequent to a crash event is another matter. And that is the subject of our Chart Of The Day and today’s post. We looked at the same 9 post-crash events plotted in the chart above and studied each of the rallies following the end of the bottoming process, i.e., after any re-test was complete.
What we found was that the rallies were not as correlated as the crash-to-retest process was across the events. Rather, the character of the post-crash rallies was more dependent upon the existing cyclical market environment. That is, during cyclical bull markets, the rallies were longer, stronger resumptions of the bull. During cyclical bear markets, they were shorter, shallower “bear market rallies”.
Here is a chart of the 9 post-crash rallies, along with the current bounce through yesterday (11/12). (Sorry for the busy chart).
If you can make it out on the chart, the post-crash rallies fell into 2 regimes. 4 occurred within cyclical bull markets (the month signifies when the rally kicked off):
July 1970
December 1987
October 1998
October 2011
These rallies were really resumptions of the existing cyclical bull markets, although the 1970 event kicked off a new cyclical bull market. These rallies were extended affairs, lasting anywhere from 6-18 months.
The other 5 occurred within cyclical bear markets.
June 1962
May 2000
April 2001
September 2001
October 2002
The May 2000 event initiated that cyclical bear market. These events happened to be shorter-term “bear market rallies”. The 1962, April 2001 and 2002 rallies peaked after just 1.5 to 2 months, gaining between 14%-21%. The 2000 and September 2001 occurrences lasted a little bit longer, at roughly 3.5 months. They gained 11% and 21%, respectively.
So what about the current rally? Well, the S&P 500 peaked, thus far, on November 3. That was Day 26 of the rally, or barely over 1 month. Its gain at that point was 12%. How does that stack up? Even versus the bear market rallies, it would be the shortest and second shallowest (next to 2000) of any of the rallies on the chart.
Could the rally be over? Its possible. Though, if it is, it would be the outlier on the chart. That is not to say it can’t be. Every study has to have a winner and a loser. It’s just tough sometimes to imagine that the event you are presently studying is the outlier.
For now, we’ll leave it at that. Is there more left in the tank to the post-September rally? That likely depends on if the post-2009 cyclical bull market is intact. If so, then there is potentially a lot left in the rally. On the other hand, if the August crash ushered in a new cyclical bear market, then it is possible that the rally has run its course. Although, it would have been an especially anemic one, even for a bear market rally.
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Yes, all hell breaks loose now. Prepare accordingly.
out of chaos comes order
So what does the historical charting "patterns" say about global central banks panic buying everything hoping to prop things up for just a little longer? Historical technical charting just pretends to have credability. The reality is that we are in uncharted historic territory. Central Banks across the world have truly taken insane measures to "prop" things up. Nothing in history can compare...
I want to see the historical precedent on rallies that start within spitting distance of all-time market highs in the middle of a liquidity trap with the entire global economy slowing down, massive supply overhangs, companies levered up to the hilt to fund share buy-backs, inventories piled up to the ceiling on the hope they'll be worth more tomorrow while interest rates have been at zero for six years, after 3 rounds of massive QE, a government debt of $18T and half of the population dependent on government assistance for their daily survival.
Could I see that chart?
No. Now run along and buy more FB.
Way ahead of you on that FB thing, TD. It's the only safe haven left. Well, that, NFLX and AMZN.
Sure, here it is... a nifty little company out of WV that rode the China trade hard with its "met coal to da moon forevuh Alice" business plan... and we know how that China trade thingie is working out these days. Its just the tip of the iceberg, ask any resource company, or dry bulk shipper, or oil tanker firm, or bank that lent to them
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=anrzq&in...
or this?
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=clf&inst...
or this?
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=drys&ins...
multiply these charts by the hundreds, coming soon to a company near YOU
I'm more of a manly Twitter dude.
FB is for little girls.
This time around, due to how the market is rigged, will be a fall and the trading houses try to push it back up with it falling again, but further down. We will know we'll have turned terminal when Wall St. can no longer support it all and the Fed steps in and goes full Japan. It won't save it, but it will make a big, colorful splash and a really big crater.....
Nonsense. Never has 92 million US been out of work. No real employment, no buy, no economy. Unicorns and rainbows. The only direction is down until the leadership is changed into a growth mode and with the trade treaties coming that will never happen. The US will eventually look like Cuba. Rome was not conquered, it just dissolved.
At least Cuba did not have race riots. That starts when the welfare tit drys up.
Unless the government is involved.
ALL LUBED UP 'N READY TO GO, CAP'N!
well that's just maddeningly unhelpful
well that's even more than less than unhelpful
[/captain jack sparrow]
Kiss your asses good bye bulls. You got suckered by a bull trap.
I sure wish that was true. These faked, rigged 'markets' need a cleansing, but I feel that a massive short squeeze is on the cards for next week. Crashes come when no one expects them, and everybody is now talking about how the Dow is fixing to nose-dive 1000 points again. Shorts beware.
terror attacks are good for the eCONoME, good for maggot bonuses, and so forth so the shorts better lube up the old anus because bohica time is here.
Think you'll see the lubing required is by bulls.
so, to the FAZmobile then?
'Market Climate' = farcical.
Cant someone just do QE4 which fixes everything.........................
if it's big enough, and audacious enough, it has to work
Indeed. Stay the hell out of the markets until QE4 is announced.
I think we are at the point , most of us have been waiting for. Guide yourself accordingly.
Picked up some iodine yesterday
The Alex Jones Super-Duper 7000' deep-into-the-Earth-Purple-haze-rarest-of-the-rare-form-nascent variety, or the cheap stuff from CVS...?
PRETEND I AM "DANA LYONS" FOR ONE MOMENT - "IS IT A 'BULL' OR A 'BEAR', " WELL IT COULD BE A BEAR, BUT THEN AGAIN IT COULD BE A BULL", IS IT UP OR DOWN,.... DOWN OR UP,... IS IT "UP" OR IS IT "DOWN" - I SAY DOWN, BUT IT COULD BE "UP" SO ......YES, THEN AGAIN "NO", THEN AGAIN "YES"
F*CK MAN! GET SOME BALLS AND GIVE US YOUR OPINION BASED ON HISTORY, AND THE WAY YOU APPLY HISTORY TO YOUR ANALYSIS! I HATE READING THIS GUY.
NO ONE WILL KILL YOU IF YOU ARE WRONG - WE ARE ALL WRONG - WE ARE ALL HUMAN, NO NEED TO PRETEND OTHERWISE.
Stop shouting doggis. My ears hurt.
Western Capitalism is confronted with daunting economic problems- stagnant/declining economies, fallings profits and declining revenues, high unemployment coupled with anemic growth (> 90% of “new” US jobs are temp positions- low pay, no benefits or job security), increasing austerity, poverty and debt. Thus the purchasing power of working people has declined, resulting in reduced demand- declining retail sales, falling commodity prices and deflation. The last time the world experienced such severe economic problems was during the Great Depression. It took over a decade and a world war, resulting in circa 50 million casualties to get the world economy moving again. Given this backdrop, it is difficult to see how the stock market will go up. The Nikkei has been propped by via massive buying by BOJ; maybe the US FED and ECB will do the same.
So we're still in a bull market...unless we're not.
Depends on whether the PPT shows up for work or not... Given the volatility in all aspects of life in the US these days, I wouldn't be surprised if Barry had a hotline to the PPT, telling the when to juice the market and when to fade it... He has expensive tastes that he has to fund in retirement...
Market Climate Change is a religion.
Follow oil. It dictates where the markets go. We wont have a crash this year imo, just a mroe violent sideways shitshow...the real crash happens in obama's last year. We will see a false flag right before the big show to cover it up.
This mealy-mouthed waffleing crap is totally pointless when all the market is based on is WHEN MAFIA-FED CARTEL opens Dovish mouthpiece! THAT IS IT !
This guy has a ways to go before his stuff rises to a Lance Roberts level... You gotta love it though - the witching, parsing, sooth-saying, divinating, incanting, shaman-like antics these fella's go through just to catch a stray $fee somewhere or get their name put on a map of 'Look - he called it first!!'...
Stock market to crash on monday because of terrorist attack?
Nothing that the markets "breaking" for a couple hours mid-day can't fix.
(Yes, Monday will be ugly.)
So the sun may shine or it rains. Useless analyses to be honest. So let me say something useful here:
DEFLATION STARTED! - OCTOBER http://forum.prisonplanet.com/index.php?topic=80429.msg1559610#msg1559610
DEFLATION STARTED! - NOVEMBER http://forum.prisonplanet.com/index.php?topic=80429.msg1577364#msg1577364
WORLD ECONOMY COLLAPSING - OCTOBER http://forum.prisonplanet.com/index.php?topic=100571.msg1577221#msg1577221