Reversals And Countertrend Moves Typically Take Time To Develop

IMG Auteur
Published : January 11th, 2019
414 words - Reading time : 1 - 1 minutes
( 0 vote, 0/5 )
Print article
  Article Comments Comment this article Rating All Articles  
Our Newsletter...
Category : Technical Analysis


Since investor psychology tends to be similar after a sharp plunge in the stock market, subsequent bottoms and/or countertrend rallies often share similar characteristics. The first three cases below all show investor behavior following a sharp 20% plunge in a non-recessionary environment.

The 1987 case featured a sharp oversold rally of 18.82% and a retest of the original low 45 calendar days later.

The 1998 case featured a sharp oversold rally of 13.42% and a retest of the original low 37 calendar days later.

The 2011 case featured a sharp oversold rally of 11.73%% and a retest of the original low 56 calendar days later.


As we have noted in the past, the initial plunge in 2007 also shares some similarities to 2018-19. In the 2008 case, the plunge was followed by a 9.92% rally. The previous plunge low was retested 54 days later. Following the successful retest, the S&P 500 rallied 13.43% before the countertrend rally ended on May 16, 2008.


Respecting 2019 will carve out a unique path, it is possible human nature will once again produce a period of volatility and consolidation in the wake of the December 2018 plunge. Thus far, the current oversold rally seems to align with the historical cases shown above. Therefore, it would not be surprising to see the S&P 500 rally back to the 2600 to 2670 area before retesting the December 2018 low sometime in the next three to six weeks (late January to mid-February) - all TBD.


When markets plunge, profiles tilt heavily to the bearish-trend side of the ledger, which is still the case in 2019. For any type of sustainable rally to take place, it typically takes time for the data/trends to stabilize/consolidate, allowing them an opportunity to turn back up after a retest of the original low. The basic concept is illustrated via the 50-day moving average in the 2008 case below. The market’s profile/hard data is extremely weak near the first low (red arrow). After the retest of the low, the period of consolidation/confusion has allowed the data to stabilize and subsequently turn back up.

Our purpose is not to forecast any outcome in 2019, but rather to understand and respect a wide range of outcomes, including a V-bottom or failed retest of the December low, followed by much lower lows. The market remains in a downtrend until proven otherwise.


<< Previous article
Rate : Average note :0 (0 vote)
>> Next article
Comments closed
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
Buyer’s Remorse
26 Margfs543-1
Mr. Kunstler, you have written an outstanding dissection and clarification of the Mueller probe. Thank you!
On The Hot Seat
25 MarS W.
Good questions ! Butler has never been right and I am going back years. Silver has been in massive downtrend for 8 years and will likely be...
On The Hot Seat
22 MarRobert L.1
It is now close on two years ago that Ted Butler said "I am convinced that silver will soon explode in price................the price of silver wil...
Coercion Meets Its Match
24 MarS W.
When I wet to Uni I received a TEAS payment (tertiary education assistance scheme ). It was not a lot of money but it helped. I also worked shifts...
Deadly Serious
22 MarJ.0
Conservatives generally treat others with gentleness and compassion. This is often mistaken for weakness by the Left. Big Mistake. Don’t poke...
The Blind Leading the Deaf and Dumb
19 MarJ.2
The economic depression looming ahead will be violent, but it could also be very short. All that is required is for the government to get out of t...
Ides and Tides
17 MarThemis
The Federal Reserve chairpeople bring to mind Chamberlain's return from Germany prior to WW II, reassuring the British people of "peace in our time".
The Domino Effect – Romania joins Gold Repatriation exodus
17 MarThemis1
The Bank of England, through its arbitrary refusal to repatriate Venezuela's remaining gold, has lost the trust of smaller nations. It has bowed t...
Most commented articlesFavoritesMore...
World PM Newsflow