Here is an indicator I developed back in 2016 designed to detect panic selling that is so severe, it creates a crescendo wave.
Here is the criteria:
- 4 out of the past 4 days must have seen a drop in the S&P 500 of at least 1%.
- The most recent close brought the S&P 500 down to the lowest level in a month.
- The most recent close was below the S&P 500’s 200-day moving average.
With that in mind, here is a chart showing every instance since weekend trading ended back in the 1950s.
In each case, the market was up 1 year later… even in the bloody 2008 instance. What was less certain was a rally the next month or the next quarter.
We’ll see if the tradition holds up.