What a difference a few weeks makes.

Just four weeks ago, the S&P 500 was making new all-time highs. It was bumping into resistance at 2940. Most folks were looking forward to a year-end stock market rally. Financial television talking heads were cheering about the potential for the “melt-up” phase of this 9-year-old bull market.

Today, things look a whole lot different.

At the low of the day yesterday, the S&P 500 had given up all of its gains for the year. The index was trading below the 2725 level that held as support earlier this month. Most folks aren’t talking about a year-end rally anymore. Indeed, many of the financial television talking heads are asking if the bull market is over.

Now, I can’t tell you for certain if there’s any life left in this tired, old bull market. Whether stocks melt-up or crash from here is probably a coin toss.

But, there is one thing I do know with absolute certainty…

Folks will do better by buying stocks into oversold conditions and selling them into overbought conditions than by doing the opposite.

That seems obvious, of course. But most investors don’t act in an obvious manner.

Go back to the early days of 2018. In just three weeks, the S&P 500 was up 5%. Stocks seemed to rally just about every day. Technical conditions were horribly overbought. Yet, most investors felt compelled to chase stocks higher.

A few weeks later, after the S&P 500 had dropped 10% and technical conditions had reversed from overbought to oversold, investors were no longer interested in buying stocks.

And, that’s the situation we’re facing today.

Just about all the folks who wanted to buy stocks when the S&P was trading at 2940 have disappeared.  The stock market is 7% cheaper today. Many stocks have lost 20% or more in just the past few weeks.  The market is doing what it just about always does this time of year.

It’s falling. It’s shaking bulls out of positions. It’s scaring people. And, it’s setting up for the traditional year-end rally.

I like the idea of buying stocks here. We may not be at the bottom of this decline phase yet. But, we’re close enough to the bottom to put some money to work in the market.

If you were interested in buying stocks four weeks ago, well… you have a much better price at which to buy them today.

Best regards and good trading,

Jeff Clark

Reader Mailbag

Are we at the bottom of this decline phase? Or do you think there’s a bigger fall to come?

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