For those of you following my blog you know that I have had two posts regarding the last two-years of V-shape bottoms and what their history tells us. If you missed them, you can view them here and here. I have been keeping track of the most recent V-shaped bottom from August 7th and comparing them to other such shallow bottoms that have been the modus operandi since late 2012 and all result in quick snap-backs. Here is an updated table that takes a look at several factors so you can see where the current one resides. 
As you can see above, on average the market tacks on another 3.3% after making a new high from a V-shaped bottom over an average of 40 days. After making a new high of 2011.17 on September 4th (which took 15 days from the bottom) we have lost 1.3%. If we don’t go on to make new highs before correcting again it would be the quickest new highs from a V-bottom without then going on to make new highs again.
50-day Moving Average Touches: As you can see on the chart below we are currently 0.7% away from the 50-day exponential moving average which coincides with the lower bollinger band. Why is that important? We have had four corrections in which after recovering to new highs we have hit the 50-day moving average at least once while maintaining the uptrend (marked with green dashed lines). In each instance the S&P 500 also tagged the lower bollinger band and more significantly only closed below it in one of those instances (April to June 2103). In that one case, it closed above the next day. In other words, if we do tag the 50-day and lower BB band next week the risk/reward favors a bounce and further upside. Moreover, only in that one instance mentioned did we not move on to make new highs from the 50-day bounce.
Breadth Measure: Beneath the chart is a display of stocks that are currently above their 50-day moving average. Except for the one instance that we didn’t make further highs after the 50-day bounce, notice the breadth measure always moves back above 70%.
Fiancials-S&P 500 Correlation: Finally, I looked at those four instances against the correlation between the financials and the S&P 500 (not displayed). In each instance that we went on to make new highs financials were leading the S&P 500. Currently, we have that very circumstance playing out.
Putting it All Together: The takeaway from all that is next week favors either continued chop (with the downside likely limited to around the 50-day moving average at 1971) or more upside. Furthermore, based on the V-shaped bottoms since 2012, whether we tag the 50-day or not the risk/reward favors that we do make another new high above 2011.17 and that over 70% of stocks once again get above their 50-day moving average.
Good luck next week!
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Bears, Don’t Get Excited Just Yet
50-day Moving Average Touches: As you can see on the chart below we are currently 0.7% away from the 50-day exponential moving average which coincides with the lower bollinger band. Why is that important? We have had four corrections in which after recovering to new highs we have hit the 50-day moving average at least once while maintaining the uptrend (marked with green dashed lines). In each instance the S&P 500 also tagged the lower bollinger band and more significantly only closed below it in one of those instances (April to June 2103). In that one case, it closed above the next day. In other words, if we do tag the 50-day and lower BB band next week the risk/reward favors a bounce and further upside. Moreover, only in that one instance mentioned did we not move on to make new highs from the 50-day bounce.
Breadth Measure: Beneath the chart is a display of stocks that are currently above their 50-day moving average. Except for the one instance that we didn’t make further highs after the 50-day bounce, notice the breadth measure always moves back above 70%.
Fiancials-S&P 500 Correlation: Finally, I looked at those four instances against the correlation between the financials and the S&P 500 (not displayed). In each instance that we went on to make new highs financials were leading the S&P 500. Currently, we have that very circumstance playing out.
Putting it All Together: The takeaway from all that is next week favors either continued chop (with the downside likely limited to around the 50-day moving average at 1971) or more upside. Furthermore, based on the V-shaped bottoms since 2012, whether we tag the 50-day or not the risk/reward favors that we do make another new high above 2011.17 and that over 70% of stocks once again get above their 50-day moving average.
Good luck next week!
For daily analysis and stock ideas check out a subscription.
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