This key factor will determine if a bottom in the stock market has been reached and a rally can resume, quant trading firm says

• The stock market staged a historic reversal on Thursday after Russia launched its attack against Ukraine.
• The Nasdaq 100 rose more than 3% on Thursday after it was initially down more than 3%.
• Such a reversal hasn't happened since 2008, and whether a bottom has been made will be determined by this one factor.

The Nasdaq 100's historic reversal on Thursday shocked investors, with the tech-heavy index closing the day up more than 3% after being down 3% in early morning trades.

That 6% one-day trading range in the Nasdaq hasn't happened since December 2008, according to a Friday note from Chris Murphy of Susquehanna International Group.

"Over the past 30 years there has been only 10 other reversal days like yesterday, all have occurred during the Great Financial Crisis and the dot-com crash," Murphy said.

That's not a good sign for bullish investors, as those market environments were indicative of a classic bear market rally, with heightened volatility and low liquidity.

But according to Murphy, one factor will largely determine whether today's stock market follows the same path as the dot-com bubble unwind and the Great Financial Crisis, or if the market has found its bottom and will stage a rebound: an economic recession.

"Historical precedence says we are [near the lows for this correction] if we avoid a recession," he said.

And that's definitely a possibility. The economy has continued to expand in a post-pandemic environment, with consumer balance sheets strong, corporate earnings at or near records, and millions of more job openings than there are unemployed workers.

But there are several headwinds to the US economy that could exacerbate the recent market volatility and lead to a continued downdraft in stocks, and ultimately a recession.

"If war, inflation and the Fed tip the US economy into a recession, then historical precedence points to more downside," Murphy explained.

That view lines up with a Friday note from Bank of America, which warned that a bear market is imminent in 2022 as the Fed raises interest rates and reduces its balance sheet in an economy that is seeing decelerating growth and persistent inflation.

But if the US economy can manage to continue growing amid the heightened uncertainty surrounding Russia's invasion of Ukraine and the potential for higher commodity prices driving Fed rate hikes, then a tradeable bottom likely was made in the stock market on Thursday, according to Susquehanna.