How The Recent Stock Market Crash Is Just Like 1987

The stock market is making an oversold bounce right now, and has reached its first fib retracement (23.6%). The standard target for a bounce is 38.2% – 50%

 

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Let’s determine the stock market’s most probable medium term direction by objectively quantifying technical analysis. For reference, here’s the random probability of the U.S. stock market going up on any given day, week, or month.

 

*Probability ≠ certainty. Past performance ≠ future performance. But if you don’t use the past as a guide, you are walking blindly into the future.

Buy the dip, like 1987?

The past week has been crazy.

The S&P 500 tanked and then surged.

 

From 1927 – present, there has been only 1 other case (other than right now) in which the S&P fell more than -1.5% for 4 days in a row, and then went up more than 5.8% over the next 2 days:

1987

 

 

 

We can loosen the study’s parameters, and see what happens next to the S&P when it fell more than -1.5% for 4 consecutive days and then went up more than 4% in 1 day

 

Once again, this is extremely rare.

Both cases saw the S&P rally, retest, and eventually push higher.

n = 2, so take this study with a grain of salt.

Either way, this illustrates how such crashes typically have a retracement rally and then a retest.

Will the retest be like 1962, 1987, 1998, and 2011?

After the stock market rallies and retests, will it push higher to make new all-time highs? Or is this the start of a much bigger bear market?

(It is not unprecedented for the stock market to have 20% declines without a recession. This happened in 1962, 1987, 1998, 2011).

Here’s the S&P in 1962

 

Here’s the S&P in 1987

 

Here’s the S&P in 1998

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Our discretionary outlook is not a reflection of how we’re trading the markets right now. We trade based on our quantitative trading models, such as the  more

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Comments

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Carol Wydra 2 months ago Contributor's comment

If algos account for 75% of the trading in 2018, why are you going back in time looking for similar patterns (1987) when they didn't even exist? Makes no sense. Sure your squiggly lines look similar but there the connection ends.

Carol Wydra 2 months ago Contributor's comment

nice to know history is on our side for 2019. Not nice to know according to your toys, longterm the market sucketh. Alert the Oracle.