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Staging a Genuine Rebound?

Updated: Apr 10, 2020

The stock market continues with its recovery rebounding sharply from its 3/23/20 low. Many investors continue to be confused about the recent powerful rally from its late-Mar 2020 low and is wondering if this is an oversold rally to sell or a genuine rally to buy?

The real question that one should ask is whether the recent recovery is a V-type, U-type, W-type or L-type recovery. The above recoveries refer to the time, duration and magnitude of recovery. On one side of the recovery spectrum is the V-type recovery. This is the preferred recovery after a major bear decline as it is the fastest of all recoveries. On the other extreme is the L-type recovery as this tends to be the deepest and longest of the recovery types.

Given the technical damages incurred during the Feb to Mar 2020 bear decline it is reasonable to expect something in the middle. The common middle of the road recovery often results in a U-type recovery. Technically speaking, this is reflected on the charts by a technical basing effort. This technical base often takes on two separate paths. The first path would result in a higher-low pattern. Under this scenario the market in question retains its Mar 2020 lows on any subsequent pullbacks. The second path is a lower-low pattern. Under this scenario the Mar 2020 low is broken, and this leads to a climatic market bottom at a lower level.

Either of these scenarios are possible under a U-type recovery. The path that it takes usually depends on the length and breadth of the recession. The faster the recession the sooner the stock market will respond with a stronger and sustainable bull rally (higher-low pattern). On the other hand, the longer and deeper the recession the more extensive the U-type recovery (lower-low pattern).

Based on the continued uncertainties in the marketplace we have again updated key technical levels for major U.S. stock indexes including the S&P 500 Index (SPX), Dow Jones Industrial Average (INDU), and the NASDAQ Composite Index (COMPQ). We hope this will better clarify the upside potentials as well as downside risks in the respective markets.

S&P 500 Index (SPX – 2,749.98)


A recent ascending triangle breakout above 2,641.39 (4/7/20) and above 2,650.89 (38.2% retracement from Feb-Mar 2020 decline) suggests +449.53 points or SPX targets to 2,792.69 (50% retracement), and above this to 61.8% retracement (2,934.49) and then to 3,090.92 (breakout target).

Support 1 = 2,637-2,641 (4/7/20 breakout)

Support 2 = 2,523-2,571 (4/1/20 gap up)

Support 3 = 2,447.5 (4/1/20 low)

Support 4 = 2,301-2,344 (3/24/20 gap up)

Support 5 = 2,191.86 (3/23/20 reaction low)

Resistance 1 = 2,793 (50% retracement from Feb-Mar 2020 decline)

Resistance 2 = 2,934.5 (61.8% retracement)

Resistance 3 = 3,091 (4/7/20 ascending breakout target)

Resistance 4 = 3,131-3,137 (3/4/20 and 3/3/20 highs)

Resistance 5 = 3,393.52 (2/19/20 all-time highs)

Dow Jones Industrial Average (INDU – 23,433.57)


Ascending breakout above 22,595.06 (4/7/20) suggests +4,381.36 points or INDU targets to 23,891 (50% retracement from Feb-Mar 2020 decline), and above this to 25,231 (61.8% retracement), and 26,976.42 (breakout target).

Support 1 = 22,595 (4/7/20 breakout)

Support 2 = 21,448-21,694 (4/6/20 gap up)

Support 3 = 20,735 (4/2/20 low)

Support 4 = 19,121-19,649 (3/24/20 gap up)

Support 5= 18,213.70 (3/23/20 low)

Resistance 1 = 23,891 (50% retracement from Feb-Mar 2020 decline)

Resistance 2 = 25,231 (61.8% retracement)

Resistance 3 = 26,976 (breakout target)

Resistance 4 = 27,085-27,102 (3/3/20 and 3/4/20 highs)

Resistance 5 = 28,403-28,893 (2/24/20 gap down)

Resistance 6 = 29,569 (2/13/20 all-time high)

NASDAQ Composite Index (COMPQ – 8,090.90)


Breakout above 7,880.31 (4/7/20) suggests +1,248.89 points or COMPQ targets to 8,234.90 (50% retracement from Feb-Mar 2020 decline), and above this to 8,613.32 (61.8% retracement), 9,070-9,020 (3/3/20 and 3/4/20 highs), and 9,129.20 (ascending triangle breakout target).

Support 1 = 7,880 (4/7/20 breakout)

Support 2 = 7,519-7,618 (4/6/20 gap up)

Support 3 = 7,288.11 (4/3/20 low)

Support 4 = 6,985-7,170 (3/24/20 gap up)

Support 5 = 6,631.42 (3/23/20 low)

Resistance 1 = 8,235 (50% retracement from Feb-Mar 2020 decline)

Resistance 2 = 8,613 (61.8% retracement)

Resistance 3 = 9,070-9,020 (3/3/20 and 3/4/20 highs)

Resistance 4 = 9,129 (4/7/20 breakout target)

Resistance 5 = 9,323-9,542 (2/24/20 gap down)

Resistance 6 = 9,838.37 (2/19/20 all-time high)


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

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