The S&P 500 rallied sharply today on news that the Federal Reserve has become more dovish. However, the stock market was well positioned to begin a significant year-end rally for these reasons:
- The S&P 500 successfully passed its retest of its October 29th closing low yesterday November 27th.
- The latest AAII investor sentiment survey’s bullish reading of 25.5% was the lowest since August of 2017. The bearish reading of 47.14% was the highest since January of 2016.
Based on the two stock market bottom indicators firing off simultaneously the stock market would likely have rallied even if Federal Reserve chairman Powell had been hawkish in the speech that he gave earlier today. The probability is high that the S&P 500 could experience one of the most memorable year end rallies throughout its history by the end of 2018.
The 180-degree change for my forecast from bearish to bullish that I gave in my Sunday November 25, 2018, article entitled “Bear Market Gaining Strength; Retest of October Crash Low Fails” is because the S&P 500 closed above 2641.50 on both Monday and Tuesday of this week. The S&P 500 being able to close above 2641.50 for two consecutive up days after a close below the threshold on the Friday November 23rd shortened trading day was the difference.
The year to date chart below depicts successful retests for both of 2018’s crash lows for the S&P 500. After hitting an all-time high in January of 2018, the index crashed to a low of 2581.00 on February 8th. The S&P 500 subsequently rallied and declined back to the February low on April 2nd and passed its retest by closing just above it at 2581.88. This happening was a very bullish technical indicator. It resulted in the S&P 500 establishing a new uptrend which took the index to new all-time high in September 2018. After crashing again and to a low of 2641.50 on October 29th the index successfully tested the low when it closed well above 2641.50 on Monday November 26th and Tuesday November 27th. The close on Friday November 23rd required another two consecutive day retest and the S&P 500 passed the test with flying colors.
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Throughout 2018, the Bull & Bear Tracker’s signals have generated an average return of approximately 9% per month. The signals have had the highest productivity during 2018’s most volatile periods. For the October 4th to November 24th period, it generated a return of 7.0%. For the January 1st through April 9th period the Bull & Bear Tracker’s signals generated a return of 62.2%. As of November 25th, the Bull & Bear Tracker’s back tested and published signals generated a return of 96.4% compared to a decline of 1.6% for the S&P 500. For more about how the Bull & Bear Tracker operates and how its Red signal produces profits in a down market and Green signal in an up market read my article entitled “Bull & Bear Tracker Gorging on Market Volatility”. The table below provides some of the performance statistics for the Bull & Bear Tracker.
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