So we rallied. And since Thursday afternoon, the S&P 500 is up about 4%. It wouldn't be surprising if we gave some of it back early in the week only to rally again later in the week. The indicators still support a rally.
Earlier last week, I wrote how a low is different than a base or a bottom. Today, I want to show you two charts that I hope might help explain this better. Let's start with the chart of FedEx (FDX) . This is a two year chart. It broke down last fall. From there it had a terrific rally. But that was just a low and a bear market rally to resistance (black line).
Then the stock collapsed again in February this year, breaking the blue line with a low in March and another bear market rally back to resistance (blue line).
Since March, the lows have all been in the area of $200. There is a measured target for FedEx in the $180-$200 area. If FedEx is going to start to form a bottom or a base, we would need to see it rally to say, $240-ish, come back down and hold this $200 area, rally again, down again, and so on.
That top it broke down from last fall was not built over a month or two but over the course of a year. The general rule would be that the base might take at least that long, if it is to develop. What we know about bear markets is that they often come down in layers, not all at once. March 2020 was unique in that respect.
Now let's look at Amazon (AMZN) which spent the last two years building a top that it only just now broke down from. Here's the good news: that top measures to $2,100 so Amazon has hit that target price in just a few short weeks. But ask yourself this: how many still own it from $3,000 or more? Probably many since it spent so much time over there. And how many of those folks would love to 'just get even' and get out? Probably a good deal.
Now, if $2,100 turns out to be the low (we have no idea since maybe there will be a giant sideways move that then breaks down again) there will have to be a long period of basing. That's up and down, up and down. It needs time to overcome all the sellers that live overhead. It needs time to build a base of support where we see a level that buyers will step in time and again.
Lows develop quickly (see last week) but bottoms and bases develop over time.
For the current rally, it will depend on how quickly we see the sentiment turn and how the charts handle resistance. I've already seen the chatter go from super bearish Thursday with calls that we haven't seen capitulation at midday to 'tradeable bottom' chatter on Friday.
We can even see it ever so slightly in the put/call ratio which slipped to its first reading under 1.0 (okay it was .99, but that is technically under 1.0!) since April 20. That in turn has pushed the 10-day moving average of this metric down for the first time in weeks.