With the market in a pullback retracement mode currently, I thought it would be a good idea to look back at the S&P 500 rally off the March 2009 lows and get a sense of what to expect in terms of the average pullback.

Let’s take a look.

Using TradeStation, I’m showing the percentage decline, time span, and point decline feature of the basic trendline tool.

I started with swing highs and drew to swing lows to assess the values of the decline to get an average of what to expect now that we are in pullback mode.

As you can see from the chart, we only had four ‘meaningful’ pullbacks (unless you count the brief May and early August mini-retracements).

The pullbacks include the following:

June: -9.10%
August: -4.41%
September: -5.57%
October: -6.42%

Average: -6.37%

Current Retracement (as of mid-day January 22):  Down 3.75%

If the current correction/retracement is in line with the recent average, then we could be looking for an 80 point drop from the high to the 1,080 level.

Anything beyond 7% would clue us in that something else might be going on (a deeper than normal correction) and anything exceeding 10% (10% is a 115 point drop from the high to the 1,035 level) would indicate that odds favored a drop to 1,000 or lower.

Watch the current 1,100 level for a potential short-term support level.

Use this as a quick reference guide when trying to assess likely support zones or ’stopping points’ for the market in retracement mode.

Corey Rosenbloom, CMT
Afraid to Trade.com

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