After a day like yesterday, the risk/reward favors bulls

maserati

From Sentiment Trader:

The VIX shot up 35% to a one-year high. That has happened only two other times, both of which led to a gain in the S&P 500 of at least +8% at some point during the next three months.

10/19/87: +10.9% return, -3.7% max loss, +16.4% max gain
10/13/89: +1.0% return, -2.0% max loss, +8.1% max gain

(1) If the VIX gain was +25% or more, then the S&P rallied during the next three months 7 out of 9 times. The two failures were doozies – right before the crashes in ‘87 and ‘08.

(2) Thursday’s single-day Up issues ratio was less than 5%, which occurred after the 10-day ratio was already oversold by being less than 40%. Other than ‘46, all occurrences marked very good risk/reward scenarios on an intermediate-term time frame for the S&P.

Next three months:

5/21/40: -1.6% max loss, +13.0% max gain
9/3/46: -9.1% max loss, +3.0% max gain
4/14/47: -3.0% max loss, +10.3% max gain
10/21/57: -0.4% max loss, +6.6% max gain
10/19/87: -3.7% max loss, +16.4% max gain

The S&P dropped 4% in one day when it had been within 2% of a 52-week high sometime during the past month.

Next three months (since 1950):

6/26/50: +7.2% return, -7.9% max loss, +7.3% max gain
9/26/55: +6.1% return, -4.3% max loss, +8.9% max gain
9/11/86: +6.7% return, -3.0% max loss, +8.4% max gain
10/13/89: +1.0% return, -2.0% max loss, +8.1% max gain
10/27/97: +11.5% return, -2.5% max loss, +12.5% max gain
4/14/00: +11.4% return, -0.7% max loss, +11.9% max gain

All six occurrences showed a gain for the index, with a very positive risk/reward ratio.

(4) Our Stock to bond ratio moved to -4 standard deviations. This is nearly unprecedented in the 50 years of history that we have. Here are the only other occurrences, and how the S&P performed during the next month:
From Sentiment Trader:

The VIX shot up 35% to a one-year high. That has happened only two other times, both of which led to a gain in the S&P 500 of at least +8% at some point during the next three months.

10/19/87: +8.1% return, -3.7% max loss, +15.3% max gain
8/31/98: +6.2% return, -1.8% max loss, +8.2% max gain
10/12/00: +2.7% return, -1.8% max loss, +8.2% max gain

(5) Down volume on the NYSE absolutely swamped up volume, by a factor of more than 90-to-1. The instances below are the only other ones where the ratio was 90-to-1 or greater. Next three months (since 1950):

6/29/50: +11.4% return, -4.4% max loss, +11.5% max gain
12/4/50: +15.1% return, 0.0% max loss, +16.8% max gain
6/9/53: -0.1% return, -1.2% max loss, +5.3% max gain
9/26/55: +6.1% return, -4.3% max loss, +8.9% max gain
10/19/87: +10.9% return, -3.7% max loss, +16.4% max gain
10/26/87: +9.6% return, -2.8% max loss, +15.0% max gain
10/27/97: +11.5% return, -2.5% max loss, +12.5% max gain
2/27/07: +8.5% return, -2.5% max loss, +9.5% max gain
6/4/10: +2.4% return, -5.1% max loss, +6.2% max gain

Only one loser out of the 9 occurrences, and that was -0.1%. The risk/reward was, once again, very skewed to the positive side.

6th-Sense

景仰HT 的绝顶高手，佩服！

ysc

nstar

A "small" rally, sure.
But I am 10000% certain that it will go lower, much lower.
Bears!

blackrock

dsp

Thanks. I am dead bull now. Hold till 3 months later.

n748

Good info. So no need to panic and sell at this level. Bears need to cover and bulls need to hang on, or even add some more to average down?

belmonthill

Actually so far, SP dropped the same as last summer, no need to panic..

southware

sooners

leftright

Jinan90

开小差

thx,ding

Diver

dodofish

wyjhyd