The market has just dropped 10%, the first time in years.
Many people are calling for a crash to happen RIGHT NOW.
Ignore them. They have been wrong for years.
Here are two reasons why the stock market will rally in the next week.
First, momentum divergence. What does this mean?
The market dropped sharply, rallied for a couple of days, then plunged to new lows. But the momentum of the downside move weakened considerably.
Momentum indicators, such as RSI, have increased while the market has dropped. Momentum divergences are resolved by the market following the RSI. In other words, momentum is going up so the market will follow this week.
Second, the smart money is buying on this dip.
I use an indicator that I call the Purple Predictor. The market plunged but this indicator dropped only slightly for the market and for most stocks. This indicator is a leading indicator of stock price action. The lack of downside selling by the smart money will likely be resolved by the market rallying this week.
Actually, there were even a few stocks where the smart money has been net buyers! XLF is one ETF that jumps out at me because the Purple Predictor is very bullish. I’m not buying yet but will likely buy it soon.
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