Over the past 2 weeks, our quantitative market studies have suggested that the U.S. stock market will probably retest its crash lows. That has happened.
Here’s our latest update:
When the market’s short term outlook is no better than a 50-50 bet, focus on the medium term.
The Medium Term is bullish
*Let’s analyze the stock market’s price action by quantifying technical analysis. For the sake of reference, here’s the random probability of the U.S. stock market going up on any given day, week, or month.
High volatility, a bullish sign
The U.S. stock market’s volatility has been extremely high over the past 2 weeks. Using the intraday LOW, the S&P has fallen more than -2% in 3 out of the past 10 days.
This is uncommon, especially with the S&P so close to all time highs. Most periods of such high volatility occur AFTER the market has fallen more than 20-30%.
Here’s what happens next to the S&P 500 (historically) when it fell more than -2% in at least 3 of the past 10 days, while less than 15% below its 3 year high (e.g. right now).
As you can see, this is a medium term bullish sign for the U.S. stock market, especially over the next 3-9 months.
This is a short term bullish sign for the stock market as well. 91% of the cases saw the S&P higher in 2 weeks, with the only “loss” case at a mere -0.17% decline.
The 200 day moving average
Yesterday was the first day in 2.5 years in which the S&P’s 200 day moving average fell.
