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Nearing A Turning Point

S&P Bollinger Band Std Dev

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Just a quick update on the market.

I put together a Volatility Comparison that goes back to early 1987 to determine if we have ever seen a stock market this volatile.

In the graph above, I’ve charted the S&P 500 since March, 1987.  I’ve added bands around the price line that represent how many standard deviations from the 10-month moving average has the market been at the various material low points over the years.  Standard deviation is a statistical term that measures the amount of variability or dispersion around an average. Standard deviation is also a measure of volatility. Generally speaking, dispersion is the difference between the actual value and the average value. The larger this dispersion or variability is, the higher the standard deviation (i.e., higher volatility).  The smaller this dispersion or variability is, the lower the standard deviation (i.e., lower volatility).

What do we take away from this chart?  The current crash is five standard deviations away from the 10-month moving average.  In the past 33 years, we have only been four standard deviations away three times – we have never been five standard deviations away from the 10-month moving average.  That type of reading tells you that we are nearing or past the point of a Relief Rally beginning.

Remember from our graph that we discussed in last week’s blog post, the price range for this to be considered a secular bear market is  from 2350 to 2116 on the S&P 500 Index.  Today we are at 2285, right in the middle of this range and in prime position for a rally to begin any day now.

Don’t lose hope and feel that the market will go down forever – all of the technical signs point to this crash moving into a relief rally phase soon.  That is when we will execute the next phase of our investment strategy (see last week’s post for that detailed discussion).  That is the best news we’ve seen on the charts in quite awhile!

–Mark