A criminal conviction requires the assessment of guilt beyond all reasonable doubt. Success in the financial markets is more like civil law: all that's required is a preponderance of evidence.
Since the March bottom, the market has definitely provided such a preponderance. However, if the sentiment polls are correct, many investors have had a difficult time believing the signals. The urge to try and outsmart the market is very powerful. However, following the market -- rather than anticipating it -- works with astonishing consistency.
Below is a timeline of key "follow the ball" moments over the past two months. Each of these signals came directly from the market itself.
Feb 27 - Mar 3 -- A 9% Shanghai plunge takes the US markets down 7% in a week. Bearish investor sentiment skyrockets, and the VIX doubles. Despite just a 7% tumble, investors are unusually scared.
Mar 15 -- In the grips of selloff blues, the Ides of March sees a huge intraday reversal at the NASDAQ 200-day. It surprises amateurs and pros alike, and carries all of the hallmarks of a double-bottom (it was; chart below).
Mar 16 -- VIX confirms its peak and then falls, triggering a VIX Buy signal.
Mar 21 -- Marty Zweig's famous Nine-to-One Up Day. Every bull market in history has been launched by one of these: Up Volume outpaces Down Volume by a ratio of 9-to-1.
Mar 22-24 -- A 5-10-20 Buy signal is triggered on all of the major indexes.
Mar 24 -- The 2 year/10-year yield curve inversion heals, and copper -- the metal with a Ph.D. in economics -- has now rallied 28% off the Feb low. Regardless, the recession drumbeat grows louder on subprime woes.
Mar 26 -- Gory details of the subprime mortgage fiasco spark a huge market sell-off -- for 15 minutes. The Composite bounces off the 50-day and closes in the green, while 24 IBD100 stocks print record highs. Lots of pundits are stunned...though it may have been due to the surprise death of Anna Nicole.
Mar 29 - Apr 1 -- The Stealth Rally: as pundits obsess about the looming weak earnings season, the Composite bounces off 5-month support for 3 straight days while market internals stay positive. The IBD100 quietly begins a long rally on huge breadth and record highs.
Apr 2 -- The market internals -- and the IBD100 -- prove correct, and the NASDAQ breaks out above its 50-day. It hasn't been back since.
Apr 4 -- The TOF Ratio triggers a Buy signal.
Apr 10 -- NYSE hits new all-time high.
Apr 16 -- The Day of Global All-time Highs -- Nine global markets print all-time highs, and the NASDAQ, Dow and SPX all gap-n-run. This marks the second in a series of bullish ascending islands. SPX and hits new 6 1/2 year high. MID hits new all-time high.
Apr 18 -- The Dow hits new all-time high.
Apr 19 -- US markets are unfazed by another heavy Chinese selloff. Surprisingly strong Q1 earnings have become a primary investor focus.
Apr 20 -- Dow Theory confirms rally on trifecta of new highs. Meanwhile, OEX and NASDAQ break above key Fibonacci levels.
Apr 22 -- NASDAQ, NDX and SML hit new 6-year high.
Apr 24 -- The beleaguered SOX breaks above 5-month resistance and posts 52-week high.
Apr 25 -- Dow hits 13,000 as New Highs outpace New Lows an astonishing 602-69.
The story continues...