Let’s get back to the one thing that we can start to actually put a pin in, the numbers.

It’s a market built on expectations and yes, repetition.  It’s all thanks to the traders.

Bear Market Rallies are nothing new.  They’ve been around since, hell I don’t know, a long time.  

The beauty of when these things happen is, it gives us a new set of data that we can use to compare to future events and accurately predict the next market move.

One of my faithful members Danielle asked me to look at the correlation between today’s S&P 500 to what we saw in 2008 (make sure you thank her in chat)  and it sent me down a rabbit hole that I am happy to be in.

Now the last time I did this comparison was October 12th of this year – which feels like a lifetime ago. There was a clear correlation then which followed through with the rally we are currently seeing.

When I went back last night to run my scan I found two separate periods that had a high correlation – 75% or more.

The first period that my scan came across was from October 2008:

This gave me chills as there was a 74% correlation between today’s S&P 500 and what we were seeing just before the market really decided to tank…

Does this mean we are in store for another letdown? Is the market about to crash harder than we have seen in recent months?

No, I truly do not believe that this is what we are about to go through…and that’s coming from a well-known bear.

For this to happen the Fed would have to really shit the bed, and inflation would have to randomly double for the market to take a dive like this.

So I kept digging…

The second correlation I found was even stronger. It was from April 2010:


We had just come out of a strong bottom in 2009 and rallied back up. You should see two red arrows on this chart. This is what my scan picked up… 

Today’s S&P 500 chart has an 84% correlation to when we pulled out of the crash. We saw a healthy correction of 12% down but the market continued to climb – the trend had finally changed to a bullish pattern!

So, do you take this as the finger of god pointing you directly in a new market direction… HELL NO. 

This is a historical reference, and you use the technicals and understand that the market is performing similarly to these time periods.

Remember traders control the market – they are also creatures of habit. As we all evolve as traders it is reflected in the market. 

For example, the last two ‘real’ bear markets and today are shown below. 

 

 2000s bear market rallies

  • 4 total
  • 18.98% total gains in each rally
  • 7,6,14,8 weeks in length

2008

  • 3 total
  • 15%, 9%, 26% gains
  • 9,6,7 weeks in length

Current

  • 13%, 18% 18%
  • 5,9,7 weeks in length (assuming the latest has run its course)

 

Note that the length is getting shorter, and the runs higher are a little more consistent.  This is due to the expectations that we will have these rallies.  The market feels that they are “deserved” or “expected”

We still have a bumpy road ahead but based on what we are seeing this market is starting to pull up and we are in store for a change in the trend that could have us adding calls to our portfolio in no time.

I will continue to show you these comparisons as proof of where we are going as a part of the morning show. 

If you want to trade this with me you can come to join me in the Night Trader, we are watching these moves closely and tracking the trend nearly every day.

Either way, I will be here and catching profits every step of the way


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