The stock market just had a rare '90%-up day' that could signal a bottom

Published Wed, Mar 25 20201:00 PM EDT

Stocks may finally be showing signs of bottoming from their coronavirus-induced sell-off after a massive rally on Tuesday, a strategist at Bank of America pointed out, citing a widely followed indicator on Wall Street. Stephen Suttmeier, technical research strategist at the bank, said in a note the market had a "90%-up day" on Tuesday, meaning that 90% of the New York Stock Exchange-listed stocks closed higher on 90% upside volume. That 90% up day came as the S & P 500 surged more than 9%, its biggest one-day gain since October 2008. In the past, 90% up days have signaled the market is reaching a bottom following steep declines. "We were desperately seeking bullish response to climactic oversold readings," Suttmeier said. "A 90% up day for the NYSE on Tuesday, March 24 is a bullish response to climactic oversolds and increases the potential for a base-building or bottoming process to begin." The S & P 500 entered Wednesday's session down deep in a bear market, more than 20% from an all-time high set Feb. 12. Of the 505 stocks that make up the average, 502 are down more than 10% from their respective 52-week highs. Those losses came as the number of coronavirus cases surges around the world. Data compiled by Johns Hopkins University shows confirmed cases top 400,000 globally. In the U.S., more than 55,000 people have been infected. Spain also reported a record for one-day deaths related to the virus, with 504 confirmed for Tuesday alone. However, Suttmeier points out that S & P 500 returns are positive 10 to 65 days after the market experiences a 90% up day. He noted the S & P 500 is up 73% of the time 20 days removed from a 90% up day, with a median return of 2.1%. The median return 65 days after such an event rises to 6.4%. "90% up days do a reasonable job of confirming lows or a bottoming process," the strategist said. "Multiple 90% days can confirm major bottoms like in late 2008/early 2009 as well as correction lows such as in 2010, 2011, 2015 and 2016." To be sure, some investors think the market will not bottom until the number of new coronavirus cases starts falling globally. Suttmeier also said Tuesday's surge may just be a byproduct of secular bear trends, which feature big upside and downside moves. —CNBC's Michael Bloom contributed to this reporting. Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.

View of New York Stock Exchange, Wall Street on March 23, 2020 in New York City.

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