Rare “Bear Killer” Signal Shows 100% Chance of Stock Surge
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The 10% peak-to-trough slide in the S&P 500 outright hurt.
BUT… that’s part of investing. It’s what we sign up for. You have to take the pain to enjoy the gain.
The good news is, mega gains are shaping up for investors right now.
You see, every now and then, selling gets so intense that it triggers the ultimate buy signal… one with an enviable track record.
That’s right. History shows when this rare “bear-killer” signal flashes, going back more than 30 years, stocks roared in epic fashion 100% of the time.
We’ll get to that evidence-backed study in just a moment.
But first let’s take a stroll through the current market landscape…
A Perfect Oversold Storm
Recently I wrote how the number of stocks above their 50-day moving average reached an extreme low.In it, I showed how 19% of stocks met the criteria. Today that number has vaulted to a much healthier 44%.
But, this isn’t the only crucial sign that breadth is improving. It’s just as important to understand how severe the recent downturn was.
Above, notice the green circles indicating that we hit a breadth level of near-zero. Last month the reading sank to 6%, which we last saw briefly during the 2022 lows.
Extreme selling, just like this, is what marks a bottom.
And even this isn’t the only marker that reached severe depths.
My favorite indicator — the Big Money Index (BMI), which I created with Quantum Edge Pro editor Jason Bodner — also dipped into extreme oversold territory.
As a reminder, the BMI tracks institutional buying and selling in stocks. When sellers are in control, the BMI falls. When buyers take over, it jumps higher.
During October’s thrashing, the BMI (yellow line in the chart below) sank to levels last seen during the Pandemic Crash of March 2020.
That’s right; it broke below all of 2022’s oversold readings (the dashed green line is oversold):
Notice how the green “oversold” zone tends to offer a compelling time to buy stocks. Every time the BMI has hit that zone, the market surges soon after.
October’s BMI reading fell below 19%. What’s incredible about that is it’s only happened a handful of times since 2016.
After each instance, the market zoomed higher in all time frames.
- A month after a sub-19 BMI, the S&P 500 ramps up an average of 12.1%.
- 6 months later, equities climb an average of 28%.
- 12 months later, you’re staring at 47.6% gains on average.
This is what a “bear killer” signal looks like: Green across the board with a 100% hit rate.
And I know what you’re thinking.
“Lucas, this is only back to 2016. What about going back further?”
I’m glad you asked!
If we take this back to 1990, a BMI reading below 19 has occurred 129 times.
Every single time, a year later the market was higher, posting an average rally of 24.7% 12 months later.
At this point you should feel sad for the bears…
Because what’s coming will send them into a long hibernation!
Seriously, congrats if you’ve been nibbling away at stocks the past few weeks as I’ve been preaching.
I know it wasn’t fun at the time. But history says you’re making the right decision. Extremely oversold conditions are a blessing in disguise — but only for the bold.
You want to be long stocks right now. The historical data is screaming at us to be bullish. And no amount of fear-driven mainstream media headlines should cause you to hesitate.
Regards,
Lucas Downey
Contributing Editor, TradeSmith Daily