The first and most critical event was that the S&P 500 Index broke back above its key 50 day moving average on heavy volume (black arrows on price chart). Once this occurs, you can begin looking for other positive events to confirm that the markets have reversed the downtrend.
In this case, the Relative Strength Indicator (RSI) line crossed above zero (black arrows above price chart). For those who are not familiar with this indicator, you can access the links below for more information.
The third indication is shown below the price chart and it is showing the stochastics as moving above zero and into positive territory as well.
(again, the link below will provide a definition of this indicator).
So now we have 3 powerful technical indicators providing guidance and flashing positive signals.
There was one other event that is quite common during corrections in the market and that is, once the markets establish a low - such as last week's brief break below the S&P 500's 200 day moving average - oftentimes, the markets will retest this low one more time before springing back into a positive position.
We experienced this re-test last week.
While not every correction behaves in the same fashion, using history as a guide to help you put a system in place is certainly a lot better than guessing. It also helps to look at the average duration of a correction as a guide and over time, it's taken the markets from 2 weeks to over 2 months of back and forth action before the bull market gets back on track.
Now, pay attention for the next email in 2 days which will outline how you can uncover the next handful of big, winning stocks when the correction is over.
Regards,
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