The last 5 trading days have seen a very nice bounce in stocks, and you could make a case for its legitimacy based on the prospects for Fed Chairman Powell to make up for his recent press conference as he meets with previous Fed heads tomorrow; the data of late would justify a softer tone, which, depending on how it’s delivered, could go a long ways toward delivering the market from its recent woes. Plus, virtually all of the latest tough news has been to some degree, and deservedly, tied to the present uncertainty over U.S./China trade relations. Clearly, odds favor a solution in the not-too-distant future.

Nevertheless, technicians by and large are expecting the market to test its recent lows. The chart below explains precisely why.


Here I circled (in white) the bottoms of the sharp declines that occurred amid non-recessionary conditions over the past 20 years that I wrote about recently (read it if you haven’t already). Notice that in all but one of the cases there was a rally off of the correction low that ultimately failed; with stocks descending one last time to those levels intraday (then closing at or above) before resuming on the path of their existing long-term up trend: click to enlarge…





Perhaps, with all of the potential for some real upside from here — i.e., softer Fed, trade war end, China’s apparent willingness to do whatever it takes (read stimulus), and the hugely present fear-of-losing potentially morphing (per the other possibilities just mentioned) into the fear-of-losing-out; which explains the large gains experienced following the like periods I recently featured herein — this one will deliver a V bottom (if indeed this turns out to be one of those steep corrections amid an ongoing expansion). But, per the chart, don’t be surprised if (ditto the last caveat) it ultimately turns into yet another W… 


By the way, this shouldn’t be viewed as an ultimately bearish message. Imagine the upside if indeed conditions hold up and we see that test. You could argue that that would be all any reluctant chart-watching big-money-investor/trader would need to justify backing up their truck and filling it with stocks…