As we navigate a period of market turmoil, its important to remember that non-bear corrective phases typically last six weeks to two months and almost always include several several substantial large rallies followed by selloffs back to the range of the initial low. Indeed, this classic give and take is how important bottoms are usually formed. From a psychological standpoint, we can think of it as the weak hands exiting on strength (perhaps at or about the level at which they bought in) and strong hands stepping in on weakness. In this post we examine the past four major S&P 500 drawdowns (2010, 2011, 2012 and 2015-2016) to demonstrate the bottoming process that is typical of market corrections. We apologize ahead of time for the larger than normal charts.

Starting with the 2010 correction, we see that an initial 12% selloff over two weeks was followed by a 10% rally over five days to old highs, another 11% decline, two more rally attempts, and then a final 11% plunge. The whole episode lasted about two months.

During the 2011 correction, an initial two weeks of weakness that took the market down 18% was followed by four substantial attempts to rally to the previous highs and then a final 10% dump into the ultimate low. The whole episode lasted about two months.