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:
The Nasdaq hit the AVWAP from the 2018 Crash:
And the Russell 2000 came back and retested its prior trading range:
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:
Here’s a similar chart from @mark_ungewitter looking at post-2008 crisis:
And here’s Rob over at Quantifiable Edges showing us there’s a statistically significant upside when this signal triggers:
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.