Looking At Market Pullbacks
- Posted by TheArmoTrader
- on February 27th, 2013
As the market (S&P 500) finally sold off 2 days ago on volume, this finally generating some talk in pullbacks in the market. While this bull market rally from the 2009 low is up over ~100%, the ride up has not been a one way train. There have been many bear markets (+20%), corrections(10-20%), and pullbacks (5-10%) in between.
However, my focus in this post is going to be on pullbacks specifically (click here for more info on bull mark rallies). I want to figure out how long small sell-offs (5-10%) in the market have lasted, and how the bottoms have formed. Below is a weekly chart of the S&P 500 ETF( $SPY) and I’ve highlighted the areas in which the market “pulled back”. I only consider a pullback if it came after a significant market rally both in terms of percentage and time. I don’t want to be looking at pullbacks during bear market rallies (mainly because the temperament of participants is different than during bull rallies).
The average pullback (there has been four 5-10% pullbacks) has lasted 5 weeks (if counted from the week after they set the high). The average RSI reading at the bottom of the pullback has been 53.48, which goes to show you that you do not really need to be “oversold” in order to set a bottom. And as you see from the chart below, most of the pullbacks were, on average, right to the 20 week SMA, with two moderately “overshooting”, and one slightly “undershooting”. One last thing, there has been ONE pullback per year since the bottom.
$SPY – SPDR S&P 500 ETF
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Jerry Khachoyan is currently an undergraduate student at UCLA pursuing a degree in Political Science. He started trading in September of 2008. He concentrates on using technical analysis and reading the tape to enter the best risk/reward trades. The stock market to him is one of the greatest inventions by man.
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