When Will The First Big Rally Start?

The S&P has now fallen -20%, the conventional definition for a “bear market” (We define “bear markets” as 33%+ declines that last at least 1 year. 15%+ declines = “big corrections”).

Go here to understand our fundamentals-driven long term outlook.

Let’s determine the stock market’s most probable medium term direction by objectively quantifying technical analysis. For reference, here’s the random probability of the U.S. stock market going up on any given day, week, or month.

*Probability ≠ certainty. Past performance ≠ future performance. But if you don’t use the past as a guide, you are walking blindly into the future.

When will the first big rally happen?

You can notice something very interesting in our market studies recently. While the market studies are consistently medium term bullish, they have never been consistently short term bullish.

Why?

Because the stock market is selling off at a once-in-a-decade speed right now.

During such times:

  1. The stock market “eventually” makes a big medium term rally. Whether that rally leads to a new all-time high or is followed by lower lows is yet to be seen.
  2. The stock market can go down more in the short term.

How much more can the stock market fall in the short term?

No one knows. When the market starts panic selling (e.g. right now), the potential range for a bottom is very wide. This is why David Tepper is starting to buy some stocks right now, but he’s not max long. (David Tepper is one of the few real experts.)

In an environment like this, the worst thing to do is to go all in, guns-blazing long.

  1. If you are lucky, you might catch the exact bottom.
  2. If you are unlucky, the stock market might fall another -10% in 2 weeks before it makes an vicious rally.

CNBC published good piece about what 20%+ declines in the stock market look like.

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Our discretionary outlook is not a reflection of how we’re trading the markets right now. We trade based on our quantitative trading models, such as the  more

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Moon Kil Woong 3 months ago Contributor's comment

When oil prices turn back up.