Double Bottom Coming?

2/8/2018 9:05 AM

Dear Friends,

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.

If you have any concerns, please call us.

Founded in 1992, Jackson Wealth Management is an independent, fee-only investment advisor. Founder George P. Jackson has been the CEO/CIO of the firm since its inception with the goal of delivering value to his clients and his associates. 

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