By Bryce Coward, CFA

In remembering the late, great Yogi Berra, we can’t help but associate one of our all time favorite Berraisms with the current stock market environment as compared with that of late 2011. From our perspective it looks and feels like deja vu all over again. Most of our readers probably vividly remember the panic that ensued over the 2011 government shut down and the then large negative revision to US GDP that sent US stocks down nearly 20% in a waterfall type decline. From peak to trough that decline lasted 108 days with plenty of back and forth in between and several tests of the initial low (we’ve detailed all of the important dates and price changes in the table below showing the S&P500).

In 2015 the circumstances surrounding the global correction in stocks are certainly different. This time investors are up in arms over the slowdown happening in China and possible Fed tightening to boot. Plus, the initial decline of about 12% was not as severe as the initial decline back in 2011 of about 18%. But there are important and striking similarities in seasonality and timing that remind us of that 2011 episode. A list is as follows:

  • In both instances the cycle high occurred within one month of each other in late spring
  • In both instances the stage one low lasted a similar length of time (39 days and 32 days) and in both instances a testing of the high took place over the 8 days subsequent to that initial decline
  • In both instances an initial low was achieved about 70 days from the cycle high
  • Both instances had a counter trend move that erased some, but not of the initial decline and took the index back into strong overhead resistance
  • The chart formations prior to the waterfall declines are eerily similar

Based on the above we cannot help but draw comparisons between the current corrective behavior in stocks and the 2011 selloff. If the analog were to hold throughout, we would see a terminal low sometime around the end of October or early November that undercuts the 8/25 low by several percent. That is certainly something we’ll be watching out for.

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