A Rapid V-Shaped Reversal Near the Highs

Key points:

• The S&P 500 reversed from a 21-day closing low to a 21-day closing high within four trading days.
• Swift reversals alone produced inconsistent short-term returns and occasionally severe losses, particularly in bear markets.
• When the reversal occurred within 2% of a 52-week high, returns improved and drawdowns were shallower than after either condition alone.

A lot happened in four days

Sometimes breadth-based indicators fail to give us the all-clear signal, so we monitor price-based patterns for bullish reversals.

The world's most-watched benchmark reversed from a 21-day closing low to a 21-day closing high in fewer than ten sessions, triggering a bullish price-based pattern.

This should not surprise us. The world's most influential market rises and falls, but over time it works its way higher. What was unusual was the speed, with the reversal completed in four trading days and only a handful of historical precedents.

On a long-run chart the 21-bar Close Range Rank is dense as a barcode, because the index so often sits at one end of its short-term range. A single 0 or 100 is common. What is rare is a traverse from one end to the other in four sessions, an event with only 18 prece