The S&P 500 has jumped over 50 percent since the March low. All within six months. This is the fastest rebound within half a year that the index has made since the start of the bull market in 2009. Is it any surprise that the benchmark index now appears vulnerable to a pull back?

Since the start of the 11-year bull advance, the average pull back has equaled about 17.0 percent. When the last correction in March 2020 is added to the list, the percent moves up to 19.7 percent (Chart 1).

But all of these retracements have in common is that the S&P 500 moved to a new high after the correction within 12 months.

Chart 2 shows the level that has the greatest probability of providing the first price support when the index retreats.

The month of October is also a concern as it has the highest record of price weakness for the S&P 500 second only to February and March.

Bottom line: After advancing at a record pace to a new all-time high in September, the S&P 500 appears set to pull back over the next four to six weeks. Models point to 3050 to 3025 as a probable support level. This would represent a 15 percent decline from the price peak in early September, or about another 10 percent from the current price level. This percentage of correction would be inline with notable pull backs over the last 11 years.

Corrections are the life blood of any bull market. They allow heighten bullish enthusiasm to dissipate and offer an opportunity for new money to enter the market.

By Donald W. Dony, FCSI, MFTA
www.technicalspeculator.com

COPYRIGHT © 2020 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present. He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms. He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

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