Is a 20% jump possible?

What a week with washing down pessimism not seen since 2008!! What's going on right now is all unprecedented (some stats from a friend): the crazy day in the markets on Monday was the sixth consecutive day of the S&P 500 Index moving by at least 4%, the longest streak since November 1929. The S&P closed down 12% and has now fallen 29.5% from its all-time high less than four weeks ago. The Dow Jones had its second-worst day in its 124-year history. And the VIX, the fear gauge closed above 80, even topping its all-time high in late 2008. I'm pretty sure we are witnessing something historical and will be a very good case study for the financial history students. In that sense, we are all part of making history. Feel good about it!😇 

This is the moment that nearly everyone is thinking the world is ending. But the world has a habit of not ending, period! With all the major TA indicators showing an extreme oversold condition never seen before, it is a recipe for a "rip your face off" rally that may happen suddenly and quickly. With this in mind, I'll not be surprised to see a 15-20% jump for the market in the next few weeks. No, I'm not expecting we will be out of woods already but just a swift snap back rally to shake out those who are overly pessimistic. I know it sounds crazy and cannot be believed but I will show you tomorrow real life examples why betting against the herd on the extreme side may not be so crazy at all!

 

It's also important to understand that, for the vast majority of people, lower stock prices are good news. Warren Buffett explained why in his 1997 annual letter:  

These questions, of course, answer themselves. But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period?

Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.