SAMT Blog
S&P 500: some hypothesis about the trend
22. March 2020, by Mario V. Guffanti
Technical Analysis
The financial market has managed to surprise everyone with its behavior, and many wonder if the prices of financial assets are now in an area close to a probable bottom or, if not, how long this fast and deep fall could last.
Using technical and quantitative indicators, we will try together to figure out where the American S&P 500 index is headed, what we can expect in the short term, and what the likely trends for the medium and long term may be.
The surprise for the entire financial world was mainly caused by the ratio between the depth of the fall and the time that has elapsed, which is contained in two impressive figures: -31.93% in just 22 stock exchange days. It is difficult to react and reallocate an investment portfolio in such a short time, especially for managers, investment companies and pension funds with large assets under management.
The first point to start with is to understand how far prices have moved away from their moving average, and whether this distance is historically an extreme value. This check is related to the concept of the so-called "mean reversion" phenomenon, or return to average, such that stock prices tend to be "attracted" to their long-term average value. Several authors, also in the academic field, have studied this phenomenon particularly relevant in the world of equity investments (see, for...
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