All bear markets come to an end, but there’s no telling how deep they will run. Fortunately, you don’t need to call a bottom, as price momentum typically confirms the next durable advance. pic.twitter.com/10K54BKxSb
— Mark Ungewitter (@mark_ungewitter) May 23, 2022
Today’s Chart of the Day was shared by Mark Ungewitter (@mark_ungewitter). Bernard Baruch once famously said “Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars.” If you’re a trend follower, you’re always going to be late at the bottom and the top. After all, it’s the meaty part of the trend that you’re after. Mark shares an interesting signal that has historically marked the start of a new advance after a meaningful decline. The indicator in the lower panel shows the spread between the 20-day and 200-day exponential moving averages. The “all clear” signal comes when the spread moves from -2.5% to +2.5%. The spread is still deeply negative by -6.6%, so the coast is not clear yet. When it eventually gets back to +2.5%, you’ll definitely be a little late to the rally, but it’s probably safer than trying to catch a falling knife.