Articles

By: Chris Rowe — May 14, 2019

"Buy Buy Buy"

Buy this market.

Buy it on the way down if it keeps declining...but you want to be a buyer of this market.

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Here's why...

We've seen this 14 times over the past decade, 13 of those times were excellent buying opportunities.

The one and only time this happened, where the market continued significantly lower, I had sent out multiple emails and videos telling you the market was primed for a sharp decline.

This was in September of 2018.  I even sent you several trading ideas on how to profit from the decline in that time frame.

So what about this time?

One super reliable and very widely known market indicator is attempting to put in a "buy signal", but we won't know for sure until the end of today's trading (when we have the day's closing price).

Keep in mind that if the buy signal is triggered it will cause computerized automatic trading programs to buy stocks without any regard for the economics of the companies behind them.

Some more aggressive computerized trading programs will start their buying before the market closes at 4:00pm eastern time.  These programs assess the probability that the 4:00pm closing price of the S&P 500 will be high enough for this "magical market indicator" to trigger a buy signal.

That's one reason why you can see an increase in volume in the final 30 minutes of the trading day on intraday stock charts.  (Black squares, below).

( Click any image to enlarge )

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Rather than speculating on what the closing price will be, the majority will first need to register the actual closing price before triggering the automatic buy orders.  That's one reason why you can see a big increase in volume in the first 30 minutes of the trading day (black arrows, above).

I'm not saying the automated buying is guaranteed to cause a sharp spike in prices, but I'm saying it will add demand.

What's more important is it's a sign of a near-term bottom.  Maybe not today or tomorrow, but trying to time things perfectly is a great way to lose money and miss out on huge opportunities.

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Focus on the lower right corner of the chart.  The "RSI exponential", is at the bottom, repeatedly oscillating from oversold (below 30) to overbought (above 70).  You'll see that the RSI exponential looks like it's about to reverse upward again.

Let's not get lost in the weeds here, but here's an important side note for those who are trying this at home:

Most chart platforms show you some version of the RSI by default.  Usually the setting shown is the RSI Wilders, named after J. Welles Wilders who originally developed the indicator.  So if you check your chart for the RSI, you'll probably get that version and not what you see above.

The RSI is a momentum indicator that measures current price-performance relative to the price-performance of the recent past.  The default is 14 time periods (days, in this case) and the original RSI Wilders is calculated by giving equal weight (equal importance) to those 14 days.  But the RSI exponential attributes more weight (more importance) to the more recent days, which I find to be more useful.

The brief analysis below uses the RSI exponential.

The official "buy signal" isn't registered until the indicator closes above 30.  Currently it's at 32.98, but that could change by the end of the day.

There are several buy signals on the chart that I didn't mark.  The buy signals I marked are the ones that saw the RSI first move at least to the low point seen yesterday (20).

I drew a blue horizontal line extended to the left, to identify other times when the RSI got as low as 20 like it did yesterday.

To make a fair comparison I highlighted, in green, times when the RSI moved to 20 or lower and then reversed up above 30, generating an official RSI buy signal.

Of the last 14 times the RSI moved below 20 and then put in a buy signal, 13 were great buying opportunities.

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As I continue to preach:  The stock market just reached a "washed out" (oversold) condition not seen since the 2008 stock market crash-low.

When markets get that washed out, the following rally tends to be ferocious, as any investors who would normally be in the way of advancing prices (by selling stock) were almost certainly shaken out of the stock market in Q4 of last year.

So this, and any significant declines in 2019 should be considered a buying opportunity.  Don't bother asking "What about China?" or "what about" anything else.  The market always declines for a reason, so you'll always be able to ask "What about..." when the market offers you a great buying opportunity.

I have to go now.

I have to identify some new trading and investing opportunities for my subscribers of Sector Focus, CheckPoint Trader, and Deep Market Trader.  To find these opportunities, I'll use our institutional-investor "wiretapping data service", Sector Prophets Pro!

Chris Rowe

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