We know already that Nasdaq components had a major washout this month.
And we also know that the main indices have all arrived at major levels.
For example, the S&P 500 hit the Anchored Volume Weighted Average Price (AVWAP) from March 2020:
S&P 500 Chart
The Nasdaq hit the AVWAP from the 2018 Crash:
NASDAQ Chart
And the Russell 2000 came back and retested its prior trading range:
RUSSELL 2000 Chart
Now, we have had another signal that is showing us that the probability of a longer-term bottom is significantly increasing.
Here’s a quote from a 2002 paper from the CMT:
“Thus, our 69-year record shows that declines containing two or more 90% Downside Days usually persist, on a trend basis, until investors eventually come rushing back in to snap up what they perceive to be the bargains of the decade and, in the process, produce a 90% Upside Day (in which Points Gained equal 90.0% or more of the sum of Points Gained plus Points Lost, and on which Upside Volume equals 90.0% or more of the sum of Upside plus Downside Volume). These two events – panic selling (one or more 90% Downside Days) and panic buying (a 90% Upside Day, or on rare occasions, two back-to-back 80% Upside Days) – produce very powerful probabilities that a major trend reversal has begun, and that the market’s Sweet Spot is ready to be savored.”
See that part in bold? That describes what we’re seeing right now — significant buying across many stocks.
Not one, not two… but three days in a row.
Now, let me show you some charts from a few investing/trading Twitter accounts I follow.
Here’s a chart from @ukarlewitz showing where these instances have occurred:
@ukarlewitz Chart
Here’s a similar chart from @mark_ungewitter looking at post-2008 crisis:
@mark_ungewitter Chart
And here’s Rob over at Quantifiable Edges showing us there’s a statistically significant upside when this signal triggers:
Quantifiable Edges Chart
Now is not the time to sleep on tech stocks or the market in general.
Tons of names are building out bases after getting crushed earlier this year — and these names could provide massive upside movement.
We’re already seeing new leaders emerge that can give us very nice momentum higher without a lot of drawdowns.
The best tool to capitalize on this, in my opinion, is the Market Roadmap I mentioned earlier.
It helped me find those major levels pointing to a potential bottom… and it’ll help me time entries and exits as the market rebounds for maximal upside.
