The S&P 500 has had an extremely rough start to 2008, losing 5.3% or 78.18 points in the first five trading days of the year. The 1.8% decline on Tuesday was not even the biggest drop of the year, that honor goes to the 2.5% decline last Friday. As a result of the recent bearishness, the SPX has traded to a 13-week low in consecutive days and formed a bearish reversal on Tuesday.
Q: How has the SPX performed in the past when it experiences a bearish reversal and trades to a 13-week low?
A: According to the 13 previous occurrences of this event, omitting repeat occurrences within 10 trading days, SPX has shown a strong bullish edge that peaks 62 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the most recent occurrence of the event (Tuesday, Jan. 8 2008) is Tuesday, April 8, 2008.
SPX rallies in 100% of the cases (13 of 13) by an average of 6.2% relative to the close on the event date. The overall return of the 13 cases is 6.2%, which, based on the close of SPX on the event date (1390.19), provides a target price of 1476.38.
Note: This event also occurred at the end of November before the subsequent rally in December.
If you would like to see more details of this historical edge, go to www.markethistory.com
Ryan Soudan is an analyst with MarketHistory.com.
