[Chart] Here’s Where Stocks End up in Two Weeks
The latest data are painting a clear picture of where stocks could wind up two weeks from now.
And the prognosis is good!
Back in March, I shared a blueprint for the COVID-19 crash with you.
At the time, the prognosis looked good. Based on prior, statistically similar crash environments, the volatility that flooded into stocks starting a month prior looked like it was going to cool off and give way to some upside.
Today, I want to give you an update on what’s likely in store for the next several weeks.
Correlations between the current market environment and the 1987 and 1929 market crashes continue to be sky-high.
Have a look:
The chart above shows the average post-high return of the 1929 and 1987 crashes versus the S&P 500 Equal Weight Index.
The time frame of the prior environments is sped up to account for the record speed of this year’s crash, but the percent moves are unaltered…
That’s key, because humans react to drawdowns in similar ways across different time frames.
It’s clear from the chart that prior crash environments have provided a pretty incredible blueprint for the rebound.
While it hasn’t been a perfect relationship, key turning points line up incredibly well — history never repeats, but it certainly rhymes.
And right now that blueprint points to more upside ahead.
From this point in the crash, those prior periods managed to eke out another 5.5% return over the ensuing two weeks.
Thing is, that return could actually be supercharged this year. Like I told you last week, the numbers most folks are seeing in the S&P 500 are actually overstating the return of the average S&P stock — and if smaller names play catch-up to the big names that have been storming higher, it could help drive bigger upside here.
So the next two weeks (give or take) look like a solid time to be an investor!
But while the data here are new, the best way to trade 2020’s COVID-19 market hasn’t changed in months. Tech continues to be the most attractive corner of the market this year.
Over the last couple of months, we’ve seen the big technology names we’ve looked at in these pages rip higher. And those trends aren’t showing any signs of slowing down here…
If anything, smaller tech stocks could start participating in the upside in a meaningful way in the next two weeks.
That’s good reason to keep your focus on the tech trade in May.
Jonas Elmerraji, CMT