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A Market Low?

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  • 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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