The rebound since last Wednesday’s market rout has been historic in its meagerness. Considering the trading range of late, last Wednesday’s stock market decline was certainly noteworthy. In dropping nearly 2%, the S&P 500 essentially doubled the entire range of the preceding three weeks. Also noteworthy, however, has been the market’s rebound since, for a different reason. While last Wednesday’s decline was a shocking dose of volatility, the subsequent 4-day rally has been historic in its meagerness. Here’s what we mean.
# After falling over a percent last Wednesday, the S&P 500 has gained ground for four consecutive days. Yet, the cumulative progress of that 4-day rally has not even been enough to gain back last Wednesday’s loss. One might call such a timid bounce a dead cat rally. But whatever you want to call it, it is certainly rare.
In fact, this is just the 8th such occurrence that we have found in the history of the S&P 500 going back to 1950. And outside of two incidents in August 2003, it is the only one in the last 25 years...
So this is an interesting phenomenon, but what’s it mean for the stock market? Intuition, as well as the term, “dead cat”, would suggest that there is less than meets the eye with this bounce. That is, the momentum favors more downside given the ease with which prices fell versus rose.
However, as we have mentioned many times, such analysis has been much less reliable in recent years. And by “such” analysis, we are referring to both chart “patterns” as well as intuition. A look at the straightforward and objective data is still the best use of one’s analytical efforts, in our view.