Bear Market Bottoms Examined
Updated
So many bulls and bears are stating their cases on social media as to whether or not a bottom is in so I thought I'd take some time today to examine what a daily bottoming process looks like using SPX.
Standard & Poor's 500 was created in 1957 and since then it has gone through 9 bear markets (Defined as a GREATER THAN 20% decline on a CLOSING basis). 2022 will make 10 but at this point we do not know whether or not we have a bottom in place until we can break above the all time high of 4818.62
As you can see from the below charts, with the exception of Oct 1987; all the bottoms have large & steady "thrusts" IMMEDIATELY after the lows were made that held the following re-tracements IMMEDIATELY:
.382 - 67% (6 out 9 bottoms- 2009, 2002, 1982, 1974,1966, 1962)
.50 - 11% (1 out 9 bottoms-2020)
.618 - 11% (1 out 9 bottoms- 1970)
< .618 - 11% (1 out 9 bottoms-1987)
Our current bottom could NOT hold the .618 immediately after the low was made therefore it falls into the category of the 1987 exception/rare case. The strongest bull cases show a thrust and then hold of a .382 re-tracement.
I'm using a very basic bar chart with black bars to cut down the noise of everything, inserting a Fib Re-tracement, drawing the immediate thrust and adding the number of trading days it took to get above the last lower high.
June 1962 (Approx decline: 27%)
Oct 1966 (Approx decline: 22%)
May 1970 (Approx decline: 33%)
Oct 1974 (Approx decline: 48%)
Aug 1982 (Approx decline: 27%)
Oct 1987 (Approx decline: 33%)
Oct 2002 (Approx decline: 47%)
March 2009 (Approx decline: 56%)
March 2020 (Approx decline: 32%)
After looking over all these bottoms I must say the bears do present a strong case that the bottom is not yet in place. IMO, the only similar chart from a bulls perspective is the May 1970 case as it does resemble the "look" of our current bottom however look at how long it took to get above the last lower high.
I hope you enjoyed this post...at a minimum it gives me one post that goes back in time to look at the daily charts of all 9 SPX bear market bottoms to analyze the look and feel of a bear market bottom since they happen so infrequently!
Standard & Poor's 500 was created in 1957 and since then it has gone through 9 bear markets (Defined as a GREATER THAN 20% decline on a CLOSING basis). 2022 will make 10 but at this point we do not know whether or not we have a bottom in place until we can break above the all time high of 4818.62
As you can see from the below charts, with the exception of Oct 1987; all the bottoms have large & steady "thrusts" IMMEDIATELY after the lows were made that held the following re-tracements IMMEDIATELY:
.382 - 67% (6 out 9 bottoms- 2009, 2002, 1982, 1974,1966, 1962)
.50 - 11% (1 out 9 bottoms-2020)
.618 - 11% (1 out 9 bottoms- 1970)
< .618 - 11% (1 out 9 bottoms-1987)
Our current bottom could NOT hold the .618 immediately after the low was made therefore it falls into the category of the 1987 exception/rare case. The strongest bull cases show a thrust and then hold of a .382 re-tracement.
I'm using a very basic bar chart with black bars to cut down the noise of everything, inserting a Fib Re-tracement, drawing the immediate thrust and adding the number of trading days it took to get above the last lower high.
June 1962 (Approx decline: 27%)
Oct 1966 (Approx decline: 22%)
May 1970 (Approx decline: 33%)
Oct 1974 (Approx decline: 48%)
Aug 1982 (Approx decline: 27%)
Oct 1987 (Approx decline: 33%)
Oct 2002 (Approx decline: 47%)
March 2009 (Approx decline: 56%)
March 2020 (Approx decline: 32%)
After looking over all these bottoms I must say the bears do present a strong case that the bottom is not yet in place. IMO, the only similar chart from a bulls perspective is the May 1970 case as it does resemble the "look" of our current bottom however look at how long it took to get above the last lower high.
I hope you enjoyed this post...at a minimum it gives me one post that goes back in time to look at the daily charts of all 9 SPX bear market bottoms to analyze the look and feel of a bear market bottom since they happen so infrequently!
Note
Just saw I put the Dec 2018 bottom vs. the March 2020 bottom above. Here is the corrected chart. The Dec 2018 bottom, although not 20% on a closing basis, is just a bonus chart to shows just how strong a thrust and hold of at least the 50% is very vital for the bull caseNote
8 of the 9 bottoms resemble a "wave like" structure...1 of the 9 (1987) is not wave like and IMO 2020 does not resemble a wave but you be the judge of that! Note
The bull case...this is one huge wave! I've got 4367.19 as the "line in the sand" on some positional short trades that I have or will be taking between 4300-4350. IF the bulls can break above 4367.19 then I do think the high can be re-tested. Clearly the June bottoming process is "sus" (as my daughter would say) so maybe this could be one huge double top forming if we can get above 4350 and stay there.Note
Yesterday the SPX made a new lower low so the June low did NOT hold as my studies of bottoms indicated on Aug 18th! Today the bottom callers are back..."Double Bottom". We did have a solid 1 day "thrust". The bulls must continue with this thrust for at least another 3-4 days and then they must HOLD the consolidation and not break down like all the other 2022 bottoms and then I'll be a believer. Let's see how this unfolds from here...Note
Not to burst any bulls bubble but bear market bottoms do not begin with a gap like this one from today...the only exception was the Covid bottom but that was due to the freak nature of the stimi coupled with ZIRP (Zero Interest Rate Policy). Unlikely this will be the case this time....
Note
We do have a wave and that initial wave DID hold above the 50%...we have broken from the non-horizontal trend line (my 1st dotted line). IF Oct 13th was "the bottom" then we MUST stay above the dotted yellow line & above the Oct 13th bottom.
Note
Traders are debating whether the Oct low started a new bull market so I figured I should update this thread using the same analysis used to create this post. If a new bull market has begun then the daily bottoming process would fall under the 2 of 9 bottoms. Better stated...this bottom has a 22% chance of being "the bottom" and a 78% chance of it not holding.
Remember, when examining bottoms, you want to see a really good initial thrust off the low, then consolidate, and then thrust again. (Something really, really bullish will hold the .382 during the consolidation period)
Note
Wanted to update this post since the 2023 year has officially closed! So where does this post stand...can the bulls make the argument that the Oct 2022 low is "a major market low". My answer...yes & no. No because until we can get to and stay above 4818.62 then the run up in 2023 could be viewed as a bear market bounce; all be it a very, very strong bear market bounce. Yes, because the retracements from the Oct 2022 low did stay above the .618; although all 3 retracements could not hold the 50% they did hold the .618. As you know from the reading the post it is very rare for a major market bottom to begin the way the Oct 2022 low began so until the bulls can get it and stay above 4818.62; then the jury is still out on the Oct 2022 low being a "major market low" IMO.
Note
Some more food for thought on SPX...4800 DENIED...The bulls not only could not close 2023 above 4800; it did not even reach 4800 this year. Above is the yearly chart for SPX from inception in 1957...the last 3 yearly candles (2021, 2022 & 2023) look nothing like its past history. The red dotted lines are closing HIGHS followed by weakness years. Typically year 3 after weakness either breaks out OR we are still in bear mode. IMO getting to 5,000 is becoming a huge task. The fact is that we have completely stalled out at 4800 for 3 years...this is not typical market behavior. Yet again, this chart shows neither the bulls nor the bears can claim any sort of victory. 2024 will be interesting....
Note
With the closing today; SPX did produce a break out . A really bullish breakout will ensure weekly closings are above the red dotted line. Closing below the red dotted line would most likely indicate near term volatility to the downside; like the past break out failures produced
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