It’s tough to find any positive news right now. Everything is overwhelmingly negative…
The coronavirus pandemic is ravaging the globe. It’s infecting hundreds of thousands of people and claiming thousands of lives. And there could be countless others who just haven’t been tested yet.
It’s halting our global economy – costing jobs and livelihoods – and stoking the flames of fear.
On top of all this, my family suffered the loss of a dear loved one to a heart attack last Thursday. I think the world’s current ugly happenings were weighing on her terribly.
The world is looking bleak right now.
But this is precisely the time when we need to remain positive. We need to focus on life’s blessings… reflect on what we have… and look forth towards opportunity.
And that’s why I’m tuning out the media… and turning to what I know best: data.
So today, I’ll show you what my stock-picking system is saying today – and how it’s signaling light at the end of the tunnel…
This Selling Is Unsustainable
Over the past month, the major indexes are down between 30% and 35%. From its February 19 peak, the S&P 500 has fallen nearly 33%. So more than three years of gains have been erased.
And the markets are continuing to plummet… despite the Fed’s best efforts to keep them afloat. After the stimulus bill in the Senate failed a key vote, stocks opened lower Monday morning yet again.
Not a single sector is being spared. All 11 of them are seeing unprecedented selling.
Major hedge funds are liquidating positions heavily. And I can’t pinpoint any areas of safety right now. If it’s an equity, it’s being sold.
Many believe we have further to fall. But here’s the thing…
The massive selling we’re seeing is unsustainable.
As you know, I developed my own “unbeatable” stock-picking system.
I’ve used my experience from nearly two decades at prestigious Wall Street firms – regularly trading more than $1 billion worth of stock for major clients – to make sure it’s highly accurate, comprehensive, and effective.
It scans nearly 5,500 stocks every day, using algorithms to rank each one for strength. It also looks for the buying and selling movements of big-money investors in the broad market.
And as I told you on March 11, it was predicting oversold market conditions – and a possible trough – on March 20.
Well, my system’s big-money index hit the 25% level on March 18…
Remember, when the index hits 80% (see the red line above) or more, it means buyers are in control and markets are overbought. And when it dips to 25% (the green line) or lower, sellers have taken the reins, leading the markets into oversold territory.
Now, this usually means selling pressure has reached a bottom and a bounce is likely ahead.
But the question is: When?
Stocks Will Rebound Higher
To get an idea of what to expect ahead, I crunched the numbers on past oversold periods…
Looking through all my system’s data going back to 1990, there have been 18 similar setups – including bear markets like we saw during the dot-com bubble pop, the Great Financial Crisis, and several other turbulent patches.
Now, the average number of days of being oversold was 21. And the average drop in the S&P 500 was 8.6%.
But take a look at the table below. It shows the average forward returns for the S&P 500 over various time frames after these periods ended…
Average Forward Return
As you can see, on average, the market usually recoups its losses – and even makes gains – within a year of these periods of intense selling. (The Dow, Nasdaq, and Russell 2000 all show similar forward returns as well.)
So while I can’t tell you what tomorrow’s market close will be… I can confidently say we’ll see higher prices ahead in the long term.
What to Do Now
Again, now that we’re oversold, the data says we have an average of three weeks before it ends.
While it’s only an average – and these are unprecedented times – it’s still a good guide for what to expect.
We’re seeing a massive sell-off fueled by fear and panic-selling. There’s likely more pain ahead. But the key to getting through this terrifying time of market turmoil is to focus on the big picture.
And looking at a long-term time horizon, we can bargain hunt for high-quality stocks now, while they’re dirt cheap…
So focus on picking up great businesses that can weather the storm with little debt and lots of cash. We now have the opportunity to grab shares on sale – before they rocket higher with the overall market.
As unfathomable as it may seem at the moment, when we look back at this dark time years from now, it’ll be just another data point.
And remember, don’t let the headlines get to you. Stay calm and spend time with your family. Do the things that bring you joy in the meantime.
Patience and process!
Editor, Palm Beach Insider
P.S. As I mentioned, my “unbeatable” stock-picking system scans nearly 5,500 stocks every day. And right now, it’s finding the best of the best to pick up at a discount.
In fact, it recently flagged a high-quality stock on sale for my Palm Beach Trader subscribers that gained over 14% in just one day – even during this brutal sell-off.