We would like to send a quick note on the recent declines in the stock market. In fact, Monday saw a rare 99%+ (100%) down volume day, only seen in a handful of times in the history of the S&P 500.
Additionally, the VIX (a measure of fear in the S&P 500) spiked up to comparative relative levels, seen mostly during times of more “mature” declines, and/or after significant downturns have already occurred, such as 2008, 2011 and 2015. Reaching this level of fear and selling volume so quickly, when the S&P 500 only declined enough to resolve a “much needed” overbought condition, is a good thing for the stock market right now. Shhh, don’t tell the mainstream media that fear in the markets is a good thing.
In fact, the sooner these levels occur the better – as “fear” is “fuel” for the stock market, and the timing of these events appear to have given a buying opportunity!
What’s Next With the Market
The only negative we see going forward has to do with a short-term study (mentioned by Rennie Yang from Market Tells) regarding 99%+ down volumedays. In most cases, there is a short-term bounce followed by at least one lower close or test of the low over the next week or so. However, Rennie also points out that almost all 99%+ down volume days is a buy one year later, with an average gain of 25.5% (average loss – 2.2% in 3/13 cases).
Beyond next week, every single study we see shows the stock market will be higher 1 month, 3 months and even 1 year from now. The foreseeable future shows no upcoming bear market or stock market declines of significance.
In an upcoming newsletter, we will be discussing the concepts of the “wall of worry” during bull markets, and the “slope of hope” during bear markets, which will elaborate on the fear/greed phenomenon.
Our TacticalSHIFT® strategy is designed to move more assets away from stocks and become more conservative when the iInvest™ models determine high stock market risk.
Written by Craig Dillon
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