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Market Cycles Are Still Turning After an 11% Drawdown in October

What are the fact based indicators that suggest a the market cycles have turned bullish after an 11% drawdown in October? Are washout lows enough to begin buying? These questions follow the script of a conversation I’ve had with a friend over the last few days. I’ll call him “Z.”

Z: What are you thinking here?

Me: First, SPY bounced back to the 61.8% fibonacci level over the past 9 trading days and stopped at 281.00 (+/-). This move of 21 points has come in such a short period of time, you would think SPY would consolidate at this time.

Z: But we probably need to allow for a pullback to 275 or so?

Me: Maybe a flag or pullback. Either scenario would set up the next leg higher.

You might ask, “why a second leg higher?

The reason is the “washout” over sold conditions in the ratio between new highs and new lows.

Second,  there were over 20 break outs Thursday; stocks making fresh 52 week highs. Quality stocks like  Starbucks, McDonald’s, ULTA, Walmart, Target, Verizon, and Microsoft and many others were being bought  on above average volume.

We also triggered a buy signal on the S&P 1500.

S&P 1500 Market Cycle Buy Signal









My best guess is we flag and consolidate.

Look for dips to get bought as the cycle becomes more obvious.

We can reassess by next week most likely.


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