Key Points:
- After the S&P 500 recently undercut October lows, we are once again looking for a follow-through day. The Nasdaq undercut and a second follow-through day already occurred.
- If the second follow-through day were to fail and the S&P 500 made a new low, we would suspect that, based on history, we have entered a bear market and multiple follow-through days will be required to turn the tide.
- Conversely, if we do get a second follow-through day, which translates to gains over 4/8/13 week periods, this would be much more in line with past bull market corrections (including those that took two follow-through days to eventually exit from a correction).
- In the report, charts for each of the bear markets since 1971 are included. Key similarities (with the exception of 1987) include several failed follow-through days and an undercut of prior lows, a rolling over of 200-DMA, the 50-DMA breaking and staying below the 200-DMA, bear market rallies back to or to just above a downtrending 200-DMA, and an eventual spike in volume for several weeks as the bear markets come to an end with a final follow-through day that leads it out.
