We have seen the U.S. stock market take a serious hit since I published the “Dow Could Drop 1000 Points” on September 23.
It really was a perfect storm, as sentiment was at extremes and there weren’t many bears alive. The bearish rising wedge was the pattern that gave me “the tell” about the potential drop and it is playing out as scripted.
Now many are coming out and switching sides and calling for a market crash and an end to this bull market. Is it the end? Are we going to make new highs again? I have absolutely no idea. The game is changing by the day, so how can anyone be sure it is heading higher or lower.
Sentiment Offers Key Clues
What we do know is the here and now. Sentiment has taken a drastic turn towards extreme bearish levels. When the majority is looking one way, you have a very good chance of making a lot of money fast, looking for the exact opposite to happen. And, that would mean, expect a rally soon.
Key Levels
How far can we bounce once we find a low? I would expect at least 50-75 points on the S&P 500 (SPX) and $5-$9 on the Russell 2000 ETF (IWM) which is currently trading at 104.71 as I type this. Heck, if you were to layer in a call option position from these levels on IWM and it rallies to the lower end of the expectations, you could make over 300% on that trade.
So, why worry about the big picture? Let someone else be the hero and call the exact top or bottom. Look out three to four weeks and take advantage of these nice counter-trend rallies or drops and make $2000-$3000 fast. Rinse and repeat and you will be much better off than most looking too far out.
There is a reason I am expecting a rally. Something that has happened at every market bottom since 2013. You can see exactly what it is here –with a chart showing you what to expect.
