Articles

By: Costas Bocelli — November 1, 2018

The Last Time This Happened the Market Soared

Halloween might last just a single day, but investors have been spooked all month long!  In fact, despite a late month-end rally, October turned out to be one of the scariest months in more than a decade.

Costas

In all, $8 trillion dollars in global equity value was erased by the end of October, making it the worst month for global equities since the great credit crisis of 2008.

As for U.S. Equities, all the major stock market averages fell into correction territory at some point during the month.

Take the S&P 500, the large-cap U.S. stock market benchmark index.

After hitting an intraday record high of 2,939 on October 3rd, the S&P 500 declined to an intraday low of 2,603 earlier this week, on October 29th.  The peak-to-trough range for the month was a decline of 11.4%.

(Click any image to enlarge)

spx

And even though the stock market is bouncing off the monthly lows, many of the broad sectors were still down double-digit returns going into the final trading day of October.

sector perf

Of the eleven broad sectors that comprise U.S. Equities, five of them -- Consumer Discretionary, Energy, Industrials, Materials, and Technology -- were down by more than 10%.  Only two sectors showed gains -- Utilities and Consumer Staples.

But the selloff has been far from being a localized event.  In fact, International Equities have been hit just as hard, if not harder this past month.  Japan, Europe, China, and Latin America all suffered heavy losses.

Now here’s the good news…

Although the correction may have created plenty of pain, it’s also created massive opportunities looking ahead.

You see, the selloff has left stocks deeply oversold, particularly Domestic Equities, which happens to remain the top ranked broad asset class with respect to long-term relative strength.

Have a look at the accompanying graphic.

This shows how many stocks within the NYSE Composite are trading above their respective 30-Week (or 150-day) simple moving average.

nyse 30 week

And right now, less than 20% of stocks are trading above this very important metric.  It’s actually quite rare to have less than 20% of the stocks in the NYSE trading above their 30-Week moving average at any given time.

In fact, over the past ten-years, there have been only four instances where the reading dipped below 20%.

  • The financial credit crisis that led to the Great recession of 2008/2009...
  • European sovereign debt crisis in 2011...
  • China currency devaluation in summer 2015 and the crude oil plunge in late 2015/early 2016...
  • And the current stock market correction that began in October 2018.

Now here’s the thing…

History has proved that the previous three times this indicator reached such oversold levels it turned out to be a massive buying opportunity.  For sure, during the time, it probably felt like the world was coming to an end.

But that’s exactly how bottoms are made.  When sentiment reaches despair levels, and the technical damage reaches an extreme.

Obviously, no one knows for sure if the lows that were set earlier this week is the bottom.  But what I can tell you is that based on the historical reliability of this indicator over the past ten years... the odds of a market recovery over the next six months have increased exponentially.

Even more encouraging is the fact that we’re now moving into the seasonally strongest period of the calendar -- November through April.

And here’s one more bullish catalyst that could spark the next bull market rally…

The mid-term elections.  By the middle of next week, the cloud of uncertainty will be lifted on Washington D.C.  And regardless of who controls the House and Senate, the stock market tends to rally after mid-term elections.

So the million dollar question is…

Where will all the investment dollars flow in the post-election market landscape?

Knowing the answers can mean the difference between average performance and massive outperformance.

In other words, if you had an early tip as to which segments of the market where the so-called “smart money” was piling into and pushing prices higher, it would be a good move to follow along and enjoy the ride, right?

That's not a rhetorical question, either.  The large financial institutions that control billions of investment dollars hold a great deal of influence within the narrow segments of the market.

So wouldn’t it be a great benefit to have the ability to gain an “insiders look” as to where exactly these investment dollars are moving, and as early as next week?

The post mid-term elections may spark the next big trends to bagging huge gains.  So knowing which sector or sectors are ripe for a massive between now and into early 2019 would be great information, wouldn’t it?

The good news is that we'll be watching this situation like a hawk in the coming weeks.

So if you’re looking for fresh investment ideas to profit and want to know how the new investing trends are emerging following the mid-term elections, I encourage you to keep an eye on your inbox.

Trade safely,

Costas

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