By: Chris Rowe — January 4, 2019
I never ever ever (ever!) give "price targets"... but I do tell you the "minimum price objective" that technical analysis rules are suggesting.
For example, technical analysis rules suggest that the minimum price objective can be determined in the popular "head and shoulders top" by measuring the distance from the top of the "head" to the "neckline" and then extending that size by the same distance.
If you don't understand what you've just read, look at this chart of the S&P 500 from 2006 - 2008.
The vertical dashed line measures the distance between the top of the "head" to the "neckline" (red).
100% of that distance would bring the chart down to 1245.94, which is considered the "minimum price objective".
In this example the minimum price objective was almost the exact point where the market reversed back up, but it's usually an estimation and not exactly what ends up happening.
The idea is when a particular chart formation is completed, then the majority of the time the stock (or index/fund) will, at minimum, reach that price.
Never Predict or Forecast
Imagine giving your young children everything they think should be given to them. Imagine just letting them have free reign to make the rules, letting them do whatever they want.
It would be chaos. It would be dangerous. It would likely end in disaster.
So we don't always just tell the kids whatever they want to hear for the sake of them liking us... right?
Well this is what the financial media and in many ways what the investing industry does to the investing public. They tell you what you want to hear - which isn't reality.
And it often ends in disaster. This offends me on a level that can't be expressed here.
In fact, they have the investing public so mentally programmed that investors don't think it's absolutely insane to take people, who are predicting the future, seriously.
By predicting, forecasting and publishing a "price target", analysts not only suggest that they are seeing something about a company that nobody else sees, but they are suggesting that eventually the rest of the world will see it.
They're also suggesting they know how excited other unrelated investors around the world are going to be about it, once they see what the analyst is seeing, which will push the stock up to that price target.
Analysts who assign a price target to a stock market index, like the S&P 500, are saying they can do this with hundreds of stocks all at once: They know something nobody knows, they know others will eventually see it, they know how investors around the world will behave once they catch up to this analyst's thinking.
They tell individual investors - non-professionals - what they want to hear. They know investors, in aggregate, want predictions, the winning numbers to the lottery, and will listen as long as analysts give predictions, forecasts and price targets.
After all, that's what's easiest to digest and what makes life feel easy, in the eyes of the retail investor.
It's also what will keep the investor watching the financial news channel, which generates advertisement revenue for the television network. It's what keeps investors' investment accounts at the financial institution with the hot-shot analyst. It's what keeps the analyst's firm in the public eye (news articles announcing their target). It's what positions the analysts to publicly make a "great prediction", which keeps individual investors eagerly awaiting that analyst's next buy recommendation.
If the trade doesn't work out the way the analyst predicted, nobody so much as bats an eyelash. Nobody cares. And the analyst's firm certainly doesn't market the hell out of the bad prediction the way they do the good predictions.
Making this small change in your thinking can make a huge difference in your profits. Don't take analysts seriously when they try to predict the future. And never predict or forecast.
Having said that...
It's Now Time For Chris Rowe's "Prediction"
Just kidding - it's not a prediction. At True Market Insiders, we treat you like the grown up that you are.
Historically, when the stock market has been this oversold, it rallies by about 20% - 25% over the next few months. This tends to happen whether the stock market then continues the bull market, continues a bear market, becomes a new bull market or becomes a new bear market.
In other words, the current position we are in is a GREAT position to be in. That's because we don't need to know what the most recent correction implies for the long-term future. We just focus on the intermediate-term instead of the long-term because that time frame is where you'll currently find the high probability bet.
All we need to know at this point is that the market almost always jumps dramatically from here.
To prove this fact, I built a website for you, back in January 2016 (wow that's three years ago already!!). It all applies just as much today as it did in January 2016, at the last major bottom.
If you need historical proof that the stock market rallies strongly from oversold levels like this, visit majorbottom.com and do understand that the current reading for the New York Stock Exchange BPI is as low as 19.43.
I hope you like the website. I think it's super-cool.
True Market Insiders