My crystal ball is flashing again

I've been constantly reminded of the fact that we are facing enormous risks including historical high inflation not seen in 4 decades, Russian/Ukraine war, Fed rate hiking, supply chain disruption....just to name a few.  With that I should not be bullish at all for the market right now. I certainly got the point and by no means I'd refute or ignore these facts. I'm certainly very well aware that we are already into the bear market, especially for tech stocks as NASDAQ has already declined over 30% this year. With all these being said, does it mean we cannot trade on a bullish side? Let's look at what we have seen before in a similar situation. 

You surely remember what we had experienced during the dot.com crash, right? If you don't remember exactly, the Nasdaq was down a massive 78% across this period..... But here is the interesting observation we also had seen throughout this enormously bearish period:   Nasdaq had rallies of 32%, 41%, and 45% before it finally hit its ultimate bottom. These bear market rallies lasted 1-3 months back then, which were incredible opportunities for traders... 

 

While we could see much worse market tanking in the months ahead, we may very well also see very strong dead-cat rallies, which could be in the magnitude of 10% or more. While we have already been deeply in the bear market in the past 6 months, interestingly we haven't seen any sustainable rally yet. That's why I'm quite bullish right now, for trading purposes and for the near term of course. Actually my crystal ball is telegraphing to me that a rip-your-face-off rally may be coming any moment now. See below the VIX chart:

VIX has had a similar buy signal setup 3 times before since the start of this year. The buy signal in January kicked off a one-week, 270-point rally in the S&P 500. The index rallied 10% in about three weeks following the early March buy signal. And in early May – just before the Federal Open Market Committee (FOMC) meeting – the VIX triggered another buy signal, which sparked another 270-point bounce in the S&P 500.

Now we are seeing another buy signal from VIX. Of course, there's no guarantee that this week's buy signal will lead to similar results. But most technical conditions are extremely oversold. And investor sentiment (a contrary indicator) is about as bearish as it's been in many years. So, it looks like the stock market is at least set up for a strong oversold bounce – if not a more sustainable multi-week rally.

Based on this, I'm telling my DW Family that I'm getting aggressive in buying right now to bet on the upside in the next week or two. I could be wrong of course, but I'm confident that my crystal ball won't let me down this time as well!🤗😜