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Short-Term Rebounds Along Downtrends Are Common

The S&P 500 gained 3.63% in the last two trading sessions. About 75% of back-to-back gains of more than 3.62% have occurred along downtrends. Therefore, a case for a bottom cannot be based solely on performance.

Definitions for the purpose of this analysis only:

Uptrend: Price is above the 200-day moving average
Downtrend: Price is below the 200-day moving average

Here is a chart of S&P 500 since 1950 with the statistics:


It may be seen that 73.85% back-to-back gains of more than 3.62% have occurred along downtrends, i.e., this performance is common when markets are falling. The sample size consists of 195 back-to-back returns greater than 3.62%.

Therefore, strong rebounds along a downtrend cannot be used to support a potential bottom formation.

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