Oil Stock Prices Look Ready to Rebound to Me 3-30-20

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The chart shows oil prices divided by oil stock prices.

Of note, when there have been major spikes lower in this ratio, oil has consistently rapidly rebounded. 

The other instances showed quick gains of 50%+ in 3-6 months in oil prices.

So volatility is high, but the suggestion here is that short term trading systems can go into buy mode here with stops of course.

The chart shows that of the major lows on this chart, most of them lead to major advances of over a year in time.  The early 2015 was a quick 50% rally in oil followed by lower lows, but still a good short term trade opportunity.

Post "Crash" Rebound Projections for SPY - March 25, 2020

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This chart of SPY shows what are some projections for a continued advance over the coming weeks if the recent lows holds.

This is based on rebounds following some sharp declines into 52 week lows over the last couple decades.

The blue lines represent average MAX gains over 3, 5, 10, and 21 trading days in terms of ATR multiples which bases the projection upon volatility.

That being said, none of the instances in the table below actually gained more than about 23% over the following 1 month.  23% from the recent closing low would put SPY at around $273 which is what the red line represents.

In the comparable past instances a trailing stop of 2 or 3 times the 10 day ATR allowed the gains of the following rally to be captured.  The ATR would be anticipated to shrink as the rally continues and volatility shrinks.  So that is a wide stop now, but could shrink considerably by 2-4 weeks from now.

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This table shows the dates of the comparable lows that I am making projections off of.

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The chart here is just for historical context in that the 2 most similar historical precedents to our current environment were 1929 and 1987.

1929 had a more sharply angled and less choppy advance that retraced 50% of the crash losses before rolling over again.

1987 had a quick couple day rebound of 15% followed by a sloppy trading range for a year.


Pete

3-9-20 Stock Market Update and Expectation

The snips here show the results of a scan on past instances in SPY when it was down more than 6% in a day.

SPY only goes back to the mid 1990's, so it is short sighted in terms of history, BUT the data does include a couple of the largest bear markets in history, so it could give us some useful guides.

The implication is that there is about a 2.6:1 greater upside potential over the next 3 days compared to downside.  This is quite strong.  Note that basically all past instances increased 5% or more at some point over the next 3 days.

The lower table shows that all instances made a positive close above the signal day (today) over the next 5 days at some point.  But all of them also showed 2 higher closes over the next 5 days.

And that strategy has given the higher return compared to exiting on the first positive close.

Also note that all prior instances declined at least a little, tiny bit further over the next few days.  In fact looking at the next day's data only (not shown here), all of them made at least a slight loss during the next session.

So the point here is that this is an exceptionally volatile market, but is presenting an exceptionally high reward over the very short term.  If not in the market, a simple strategy would be to enter tomorrow at a limit of today's close.  

Then exit at the first positive close or second positive close OR after 5 days if not profitable.

Average future return peaked at a 5 day hold on this set up.

That also fit with short term cycles which suggest a 3-4 day short term advance is due.  But after than, there may be further downside or retest of the lows.