A Market Low?
Similar to August, we've seen a swift, severe price decline within the context of what had been a market near multi-year highs. It has been rare to see this kind of severity relatively soon after hitting a three-year high, especially in the past 20 years. Each of those instances marked important market lows. That was mostly the case since 1928, as well, with two major exceptions.
Friday's plunge had a big impact on sentiment. Smart Money Confidence rose above 70% and Dumb Money Confidence dropped below 20%. The spread between them is now +54%. Since 1999, there have been 135 days when the spread was higher than 53%. Over the next 30 days, the S&P 500 was positive after 112 of those days (an 83% win rate) with a median return of +4.4%. its maximum decline over the next 30 days averaged -1.9% versus a maximum gain that averaged +6.9%.
There's no denying that a 20-year chart of the major indexes looks scary, with a rounded top forming just like 2000 and 2008. But there have been other times that stocks broke down from rounded tops after a multi-year bull market. Two examples are shown.
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