When will Stock’s Uptrend End?

Over the course of the last month, the S&P 500 has moved lower to the tune of 6%. From what we’ve read, there were a lot of people on edge last week concerned that the Fed might raise rates, and potentially make the slide turn into 10 or 15%. This got us thinking what sort of correction would it take for this uptrend in the equity markets to be over? Cue the debate on what metric one should use to determine the end of a trend. (Anyone?)

For the sake of time and energy, we’ll use this chart that appeared on Reformed Broker’s blog, looking at the trend in terms of the Fibonacci Retracement.

The only thing you need to know from the chart below is that some people see a 38% drawdown (Fibonacci Retracement) from the start of the trend as in indicator that the trend is over. Conversely, some contrarians see the 38% Fibonacci Retracement as a time to buy into the market.

For those wanting to know how and why people use the not so arbitrary number of 38%, we already explained how the Fibonacci Retracement works through the lens of market metrics.

(Click to make bigger)

38 percent uptrend stocks(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Reformed Broker 

According the chart above, if you count 2011 as the start of this uptrend, then the market moved below the 38% earlier this month. It’s over and done with. If you count the start on the uptrend from where the market found its bottom (March 2009), then there’s still a lot of room left for the market to move down before the end of the trend can be called.

The chart suggests the end of the trend (if it started in 2009) would come if the market moved below $1730. For those doing the math at home, that’s an additional 12% move lower than where the market is right now. Factor in the 6% downward move we’ve already experienced and all the sudden you’re looking at an 18% move. Tack on another 2% and we would officially have met the criteria to be in a bear market.

This is of course if you’re basing an entire market off of one indicator, which we’ve sad time and time again, is a bad idea. On the flipside, it’s just as easy for someone to see a chart like this and think that there’s nowhere to go but up, which we’ve proved isn’t very consistent to begin with.

But doing nothing is a little bit like Jay Cutler leaving his team before halftime. The opponent’s defense is going to make adjustments (market volatility) and you need to be prepared with your best players (investments).

 

 

Write a Comment

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

logo