Before I start, I just want to let you know I plan on writing a special article next Tuesday to show Tycoon readers a few tricks to get the FDIC to insure much more than $100,000.00.  Just last weekend, two more banks went belly up!  That makes 8 banks!!!  Whoa!

What if your bank is the next one to close?  Is your money safe?  Scary thought, I know.  You probably heard that the FDIC insures your deposits up to $100,000.00.  But what if you, or someone you care about, have more than that? 

Next week, I'll show you tricks on how to get around that, and, if you don't have over $100,000.00, at least you'll learn a few simple tricks that can save someone you know a fortune... or at least make you sound sharp at the next cocktail (or Tupperware) party.  This could be a great way to make some friends (who will owe you some favors).  So tune in next Tuesday. 

And now for today's article...

This will be another short and sweet article to follow last Tuesday's article. Last time, I wrote an article titled "Time to Go From Bearish to the Bullish Bullpen?"  and in it, I told you that based on the action of the CBOE volatility index, as well as numerous other indicators that I follow, the market is way oversold, and we will likely see an oversold rally in this market.  Well, remove the question mark from that title.

I promised you I'd tell you when it was time to get bullish - with the understanding that we're talking about an intermediate rally within a long-term down trend - NOW is the time!

Review last week's article to catch up if you haven't done so yet. In it I said: "We just might get one more fast sell-off here, but I wouldn't be very bearish given how oversold we are." 

Yesterday, we got a big sell-off right?  But it was a sell-off on light volume.  That indicates that instead of heavy selling, pressuring the prices down, the buyers just stood out of the way temporarily and let the sellers do their thing.  So the buyers didn't exactly lose the battle.  They just didn't really show up for it - yesterday.

Last week I said this oversold market is "like a spring that's very coiled, and the more coiled it becomes, the bigger the jump higher typically is."  I said to "Wait for my confirmation, and then we'll go to town together!"  Well I have seen what I needed to see.  This is your confirmation. 

What's really crazy is the market is actually trading higher right under your noses!  That's right.  It's smoke and mirrors time!  But we're sitting backstage and we see what's really happening.

This concept may be hard to grasp because of what you have been trained to think for ages.  But the major indices that most people follow are JUST INDICATORS.  They don't always accurately reflect what's really happening in the stock market. 

Since the low we just made on July 15th, 7% of stocks (net) on the NYSE have moved from sell signals to buy signals, and 6% (net) of NASDAQ stocks have done the same.  (When I say "net" I mean if 10% of stocks moved to sell signals and 17% moved to buy signals, then 7% - net - moved to buy signals.)

Without getting into too much detail, I'll make this very simple by painting (okay, uploading) a picture for you, and giving you the proof. 

One indicator that I follow, the Bullish Percent Index, does something that means the bulls have taken control for the time being.  Don't get mixed up here please.  It is called an indicator, but the reality is that it's not an indication of what will probably happen.  Unlike the popular major indices that people follow, like the Dow-30, the BPI is an index that reflects what IS HAPPENING, and right now it's showing that bulls have taken control and stocks (unlike the Dow and NASDAQ) are moving higher.

Below is a 3-year chart of the S&P 500.  The green arrows show times when this has happened in the past.  Obviously the market rallied every time it happened, granted, some occasions more than others.

Now check out a chart from year 2000 - 2003 below.  The green arrows also point to times when the magical indicator (BPI) signaled that the bulls had taken control.

I want you to focus on the two short-term rallies in year 2000 that I circled in red.  These were only small rallies.  In fact, the first one lasted 2 weeks and the second only a week and a half.  So you might wonder if that would happen in the current market.  It could.  But you should understand the following key factor:

The market wasn't nearly as oversold as it is today.  You may not understand why, but if you check last week's article, you'll understand what I mean.  There is an enormous amount of cash sitting on the sidelines and most of the institutions that are sellers have already sold.  Today I'll just say that, unlike the two occasions circled in red above, the current signal from the BPI (showing that the bulls have taken control for the time being) came after the BPI showed extremely oversold readings. 

Again, this is a key factor.  The market is considered to be oversold, and in low risk territory when less than 30% of stocks are on buy signals.  We just got that reading, followed by the buy signal.  To put it in perspective, that's what we saw at the green arrows circled in blue in September 2001, August 2002 and October 2002.  So I don't think we'll get a quick week and a half blip like we did in the early stages of the selloff in the year 2000.  Those two small rallies occurred when 41%  and 45% (respectively) of stocks on the NYSE were already on buy signals.  The recent signal came after only 25% were on buy signals.

Don't worry, I will also give you a heads up when the tides change back to negative.  But the fact is, more and more stocks are moving to buy signals.  That means the latest trend is that more and more stocks are able to break through levels of recent resistance.  This means at price points where sellers stepped in and forced prices lower in recent history, the sellers are either no longer there, or the buyers are so strong that they are pressuring stocks higher anyway.

So this is your signal if you want to play the intermediate term rallies in what we still view as a long-term downtrend.  If you have bearish position, you should seriously consider getting out of them or reducing bearish exposure.  If you want to make sure you maximize the profit potential without getting into the areas of the market that will likely fail, then you should sign up with my options trading service The Trend Rider.  We are opening it up again for limited spots.  Click here to join, or click below to leave a comment. 


“Profit from the Trend”

Chris Rowe
Chief Investment Officer
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