Editors' pick: Originally published March 17.
Let's just get it out of the way: There's a big elephant in the room, and it looks like early November. If you don't remember what happened back then, the daily bar chart below will remind you. It shows the SPDR S&P 500 ETF Trust (SPY) , an exchange-traded fund that tracks the S&P 500 index.
Note the huge rally off the Aug. 24 mini-crash low, after the market had become so bearish. That low is indicated by the left-most green box on the upper price pane. At the time there was a 12% bulls (10-day average) reading on the daily sentiment index. Along with the plunge in price to the lower six-standard-deviation band (which statistically impossible to maintain for more than hours), the close below the lower Bollinger Band (purple dashed line) and the extreme oversold stochastics reading of 10%, that 12% bulls reading set the stage for the largest rise since the May all-time high.
By Nov. 3, that bearishness had reversed and where there were no bulls at the 12% level. Now there were 67%, on the same 10-day smoothing. Price had also risen to the upper Bollinger Band, and in a large up/down/up corrective pattern. Then, the rally-killer appeared: the red boxes showing the higher high in price vs. the lower high in stochastics. This is what we call a bearish divergence sell signal. Our decision support engine informed members of our live-market Trading Room that major trouble was due at any time. This analysis from Oct. 26 came just a week before the November peak, and this analysis came just three days after it. Although it is nice to look backward and wish someone had told us about a big market reversal about to happen, the world doesn't grant everyone's wish. So, you have to take control and make your wishes come true. That opportunity is knocking again, right now.