SPY If it is a Bear Market, here's what might happen
Many commentators are saying this is a bear market, and it is certainly true that on the last two occasions when the market came 20% off its highs, it went on to fall around 50% before recovering (although June-Sep 1998 was a notable exception, see left of chart).
So what if it is? Where will the market go. We need to view the whole bull market from March 2009, and set fib levels. Firstly, if 2008 is a guide, there will be relief rally to within 10% of the high (260-265) and then a further plunge. The next level is 61.8%, which is around the April 2015 top, before the market dropped sharply in August and then again in January 2016. Coupled with the October 2014 collapse, this creates a consolidation zone between 207 (61.8%) and 180 (50%), and one or more bounces are likely here. If market conditions are strong, this 50% fib level could be a bottom (market about 40% down from the top) incidentally, around the time of the next Presidential election.
However, if the bear market plays out, then the conclusion would be around 154, for three reasons
- this is around 50%, the same as the last two bear markets
- it is also the 2007 high, which is Darvas theory (previous major top is now support)
- and finally, it is the 38.2% fib level
There will be further signs, and I am sure many analysts will do a lot of work on the descent of markets in 2000 and 2007.
I used SPY rather than SPX to remove the cash/futures noise.
So what if it is? Where will the market go. We need to view the whole bull market from March 2009, and set fib levels. Firstly, if 2008 is a guide, there will be relief rally to within 10% of the high (260-265) and then a further plunge. The next level is 61.8%, which is around the April 2015 top, before the market dropped sharply in August and then again in January 2016. Coupled with the October 2014 collapse, this creates a consolidation zone between 207 (61.8%) and 180 (50%), and one or more bounces are likely here. If market conditions are strong, this 50% fib level could be a bottom (market about 40% down from the top) incidentally, around the time of the next Presidential election.
However, if the bear market plays out, then the conclusion would be around 154, for three reasons
- this is around 50%, the same as the last two bear markets
- it is also the 2007 high, which is Darvas theory (previous major top is now support)
- and finally, it is the 38.2% fib level
There will be further signs, and I am sure many analysts will do a lot of work on the descent of markets in 2000 and 2007.
I used SPY rather than SPX to remove the cash/futures noise.
David Atherton
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