Double Bottom Coming?
2/8/2018 9:05 AM
Let’s look at the daily chart of the S&P 500 index for the past 3 years. Observations:
We have seen 2 previous very fast moves down:
Green circle – in 2015, decline from top to bottom -12%
Orange circle – in 2016, decline from top to bottom -13%
In both cases the index (1) rapidly declined in a few days, (2) made a low, then V bottomed back up, (3) chopped around for about 1 month (4) went back down about 1 month later to re-test the initial low (5) in 2015 the index made a higher low, in 2016 it made a lower low (6) let’s call these patterns double bottoms (7) those double bottoms turned out to be good buying points.
Buying when stochastics was oversold turned out to be a wise move in both 2015 and 2016.
Yellow circle - As of last night’s close, stochastics, a short-term indicator, has declined from the overbought condition, to oversold – good sign
Blue circle – the decline has been -8% to the initial low, if we follow the patterns from 2015/2016, we may see:
More choppy action for the next 20 trading days
An additional move down to retest the 2,648.94 closing low
We would hope that the retest, should it happen, will be successful and a move higher would occur, if 2015/2016 patterns repeat
We will continue to closely monitor the markets.
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