The Current Environment versus 1998 & 1990

Patrick Dunuwila
February 22, 2019

Earlier this week, Charlie Bilello put out this tweet, comparing the recent "V" bottom off the December lows to previous corrections and bear markets:

As we can, if the current rally kept on this same projectory, it would wind up as one of the quickest recoveries from a "bear market" over the last 90 years. The other similar (so far) periods are:

  • July 1990 - October 1990
  • July 1998 - October 1998

However, I think it's important that we look at the two periods from a price and behavior perspective.

In 1990 we maybe new all-time highs in June and then retested those highs again six weeks later in July. Following that double-top, the S&P 500 saw a correction of 20.1%, ending in October. By March of 1991, the S&P 500 reach fresh all-time highs again and never looked back. One thing I'd like to point is that the first couple months of this recovery, while in a clear uptrend, were actually quite volatile. We saw one big "shake out" over the final week of the year and into the first week of January of 1991, but then we saw a very strong upward move as the S&P crossed above 369.

In the second scenario, we saw a sharp correction starting in July 1998 to October 1998. Over this period the S&P 500 saw a decline of 19.2%. In late December of the same year, the S&P broke above 1189 and held, putting in another 15 months of gains before the infamous "Dot Com Bubble" finally popped.The recovery in 1998 looks a little more similar to the one we are seeing right now. Multi-week rallies, followed by short-lived pauses. When we got back to the previous highs that we saw before the selloff, we stalled for a bit, but eventually saw new all-time highs.

So what about today?

Before we get excited, the S&P 500 still needs to take move through the 2810 area of resistance. If we were to similar action to 1998, this could turn into one of the short-term pausing phases. We could end continue ripping, in some fashion, back to all-time highs are 2930. Or we could see a pause in between those two areas (2810 and 2930) before eventually making new highs. 

All-in-all, the current situation, AS WE STAND RIGHT NOW, looks very close to the rebound we saw in 1998. However, we need to take this one step at a time, and the next "step" is breaking (and holding) above 2810.

 

 

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