Navigating Market Crossroads: A Technical Study of Historical Corrections
Unveiling Patterns and Predicting Future Market Behavior Through Historical Bear Market Analysis - Learnings From 4 Major Corrections Since 1980
The financial markets, much like a complex organism, experience cycles of growth and decline. Understanding these cycles, particularly the periods of significant correction known as bear markets, is crucial for investors seeking to navigate the inherent volatility.
This special publication delves into the historical data of major corrections, dissecting their patterns, triggers, and recovery phases. By applying technical analysis to these historical events, this publication aims to uncover valuable insights that can inform current market strategies and provide a clearer perspective on potential future outcomes.
Success in the markets does not require clairvoyance, but rather a readiness to interpret price action signals and respond strategically based on pre-established scenarios.
This publication examines the prevalent technical patterns identified during four significant bear market downturns once price action losses significant thresholds (also studied here). The question arises: are we on the cusp of a new bear market? We will begin by analyzing those essential thresholds for the QQQ and SPX, then delve into common bear market metrics to provide context for investors and traders: 1987, 2000, 2020, and 2022 bear markets have common elements highlighted below in separated charts.
Unlock the complete analysis and be informed with clear metrics and price levels, let’s begin:
QQQ
As highlighted last Monday, the 40-week moving average (MA) remains crucial, as demonstrated by the chart's purple line below. Historically, it has distinguished pullbacks from major correction confirmations. Currently, we're seeing significant RSI divergences and bearish MACD crossovers, both preceding past corrections as well.
Tech has declined exactly 10%, with yesterday's bounce off the 40-week MA followed by today's positive continuation. This week is crucial, to define the difference between correction and major correction.
To solidify a bullish reversal, QQQ needs to reclaim the price level “A” mentioned below, and given bullish signals on the daily chart, the level “B” can serve as a protective stop-loss reference for long positions: