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Thursday marked two weeks since the big three-day thrust March 15-17 in which the S&P500 gained 5.7%. In the two weeks since the initial surge, drawdown was virtually nonexistent at well under 1%. I went back to the mid 1970’s to find similar instances of a 3-day 5%+ rally followed by less than a 1% drawdown over the next two weeks. That’s where the dates in the table below start, two weeks after the initial 5% 3-day surge. There were 19 occurrences since 1975…
SPX +5% in Three Sessions, Next Two Weeks Max DD <1%
03/31/22… SPX ???
11/18/20… SPX +4.0% one month later, max DD 0.3%
04/21/20… SPX +8.6% one month later, max DD 0.0%
04/08/20… SPX +6.5% one month later, max DD 0.5%
01/23/19… SPX +5.8% one month later, max DD 0.0%
03/02/16… SPX +4.4% one month later, max DD 0.4%
10/20/11… SPX +0.0% one month later, max DD 0.0%
07/29/09… SPX +5.7% one month later, max DD 0.0%
03/24/09… SPX +5.7% one month later, max DD 2.3%
10/28/02… SPX +2.6% one month later, max DD 1.6%
06/15/00… SPX +2.2% one month later, max DD 2.5%
03/30/00… SPX -1.3% one month later, max DD 8.8%
10/29/98… SPX +7.2% one month later, max DD 0.0%
08/16/84… SPX +3.1% one month later, max DD 0.0%
10/21/82… SPX -1.5% one month later, max DD 4.1%
09/07/82… SPX +3.8% one month later, max DD 0.8%
08/31/82… SPX +0.8% one month later, max DD 1.1%
11/28/80… SPX -3.7% one month later, max DD 9.4%
02/10/75… SPX +6.7% one month later, max DD 0.0%
01/17/75… SPX +14.1% one month later, max DD 0.4%
Note that in 12 of 19 cases, or roughly two-thirds of the time, the max drawdown over the following month was under 1%. That puts the spotlight on SPX 4485. As long as that level is not broken, the market is following a path similar to the most bullish signals above.
Average gain was 5%, which is impressive considering the market has already rallied considerably by the time the signal triggers. This suggests the S&P could be challenging all-time highs before the end of April.
In only three cases did the max drawdown exceed 3%, and all three of those were the only losing signals one month later as well.
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