S&P 500 AT 1160: THE MINIMUM DOWNSIDE TARGET?
The most relevant aspect of the study I posted to the blog on Sunday may have been overlooked amidst all of the numbers I posted prior. I want to highlight it here as the market seems to be going down this path almost exactly. Here's the bread and butter of the study and what has the potential to make investors the greatest return if properly utilized:
The most interesting aspect of this study into the results of excessive pessimism meeting oversold markets is that the last 4 times we have experienced such a dynamic the markets have declined by double digit percentage within the 3 month period each and every time. This is followed, in most cases, by a snap move right back up following a short period of downside volatility.
Did you catch that? A double digit decline in the S&P 500 the past 4 times we have experienced the phenomenon of quickly oversold conditions meeting excessive pessimism. And it happens within a 3 month window.
What has following typically is a frantic move back up as the excessive pessimism and compressed prices eventually give way to an upside explosion. I think we'll see that here, but it's a ways off. September is the earliest. It could be as late as October.
A 10% move from the point the S&P 500 made the signal last week would put us around 1160.
