What Could This Week's Sharp Reversal Mean For Stocks?

In this week's video, we'll review the latest charts and data to help us answer the question, what could this week's sharp reversal mean for stocks?

A weight to the evidence approach can prevent us from making mistakes based on emotions or fear. Three weeks ago on

Friday, November 7th, with bubble talk running rampant, and with the S&P 500 down about 2.35% from the recent closing

high, we covered a historical analysis that told us in no uncertain terms that bubble talk and isolation was not a reason to liquidate our positions and we

should rather focus on the weight of the evidence or the charts and data sets in front of us.

We also compared the present-day S&P 500 chart on November 7th to the peaking process when the dotcom bubble was bursting and the peaking process in late

2007, early 2008 and said the present- day chart really didn't look anything like those peaks.

Over the next seven calendar days and five trading days, the S&P 500 for the most part was treading water. still down

about 2.33% from the recent closing high, but market participants just could not stop talking about the market being in a massive bubble. So, in the November

14th video, we looked at the NASDAQ 100 relative to the S&P 500 and after performing that analysis came away with the idea that on a relative basis

things look a lot better in the present day in terms of being confident about the NASDAQ 100's rally continuing potentially for several years.

Over the next four trading sessions, now we're fast forwarding to Thursday November 20th. things started to

November 20th. things started to deteriorate in a more significant manner. The S&P 500 on a closing basis

manner. The S&P 500 on a closing basis was down 5.11%.

And in the Friday, November 21st video we asked and answered, is this normal stock market behavior or something that we should be concerned about? The

long-term trend as of November 21st still look good. And from a historical perspective, terms of annual intear drawd downs, if we liquidated our

portfolio every time the S&P 500 dropped 5.11%, we'd be liquidating our portfolio between three or four times a year. But

we did acknowledge on Friday, November 21st, there were several yellow flags telling us to pay closer attention. But

thus far, we really hadn't seen any deterioration relative to the charts in front of us or the weight of the evidence that fell into the red flag

category.

And on November 21st, a week ago, we also asked and answered, where do we stand relative to the breath thrusts that were triggered in April and May of 2025?

The answer using the chart on your screen dated November 21st was that we really hadn't seen anything yet that negated any of this. And we all know a

model in isolation can't help us if we're not disciplined enough to follow our own rules or make decisions based on the charts and data sets that we have in

hand. And those charts and data sets on

hand. And those charts and data sets on Friday, November 21st continued to tell us to try to be patient. There was also an interesting phenomenon on Friday

November 21st. Source of the data on

November 21st. Source of the data on your screen right here. This is the Twitter handle. Here's the website.

Twitter handle. Here's the website.

Always want to give credit where credit is due. On Friday, November 21st, there

is due. On Friday, November 21st, there were huge bets in terms of trading action in the three short three times

the S&P 500 short ETF. Similar spikes

coincided with the COVID bottom, the bottoming process in 2022 the final low in 2022, and the bottoming

process from April of 2025 or earlier this year. This

this year. This like all of this told us to try to be patient and to do so with an open mind about what happened next. We always want

to keep an open mind about a wide range of outcomes from wildly bullish to wildly bearish. And in these four

wildly bearish. And in these four instances here, if you were patient things improved quickly. Every single

one of these historical cases, the S&P 500 was higher a month later. the

average gain a little bit over 11%.

And while things look pretty bleak on Thursday, November 20th, if we fast forward a little over a week to this

week, or Friday, November 28th, the S&P 500 was up 3.73% this week.

Just as it was important to keep an open mind and try to remain even keeled a week ago, we don't want to assume anything or get overconfident based on

this week's action. We'll continue to take it day by day, asking ourselves are we allocated prudently based on the

facts in front of us? If the answer is yes or we're not sure and we're asking those questions in the context of an established uptrend, then we want to heir on the side of leaving things

alone.

We said a week ago the long-term trend relative to the upward sloping 200E moving average still looked constructive and common sense would tell us if we

were up 3.73% this week, the long-term trend still looks good. It's also

noteworthy that we're trying to make a turn on the shorter term time frames.

This is a 39minut chart of the S&P 500.

This is the recent peak that we had before the 5% draw down. You can see we're back above the cluster of anchored volume weighted average price lines.

Those are the colored lines and we're trying to hold above this downward sloping trend line. The longer we can stay out in this area, the more

meaningful it becomes. And we should also keep in mind there's a gap down here. So, it's possible that early next

here. So, it's possible that early next week we could get another head fake and come down and fill this gap. If we

filled the gap and move back to this white space again, that would be extremely constructive. Whether or not

extremely constructive. Whether or not we backtrack to that gap, that's the market's decision. It's just something

market's decision. It's just something to be aware of.

Another good observation here. On

Friday, November 21st, a week ago Bitcoin sentiment was at its lowest level in 3 years. Something else telling us to keep an open mind about better

thanex expected outcomes in the short to intermediate term. And this occurred in

intermediate term. And this occurred in the context of a longer term chart for Bitcoin that told us we were nearing an

area of potential support.

What once acted as resistance in 2021 and late 2021 may now act as support in 2025.

And common sense also tells us if we covered this chart a week ago and we really hadn't seen anything a week ago that said this uptrend was in jeopardy

then the same would be true after this week when we're up 3.73% relative to the look of the chart in your screen that we covered on November 21st.

The same can be said for this chart. If

it looked constructive last week, it still looks constructive this week. And

we can use that same logic with our models. If they were constructive a week

models. If they were constructive a week ago and we're up 3.73% this week they're constructive as of Friday November 28th as well.

It's also good to know relative to the longerterm secular bull market thesis, a secular bull market primarily driven by increasingly favorable demographics. You

can also make an argument from an earnings growth perspective that the S&P 500 by the end of the decade could reach somewhere between 9,000

and 11,000. And of course, all of this

and 11,000. And of course, all of this over here aligns with rather than contradicts the breath thrust that we had earlier in this year and the concept

of a secular bull market. A source of the information on your screen, Yardeni Research. Yard Denny also noted that

Research. Yard Denny also noted that inflation trends are also heading in the right direction which aligns with all of the charts that we've covered on that

topic over the last year including this chart of EF on your screen that still looks constructive as of 2 p.m. Eastern

on Friday, November 28th. This really

doesn't look anything like not even remotely close to the concerning look that was present in January of 2022.

Once again giving credit where credit is due. Twitter handle upper right hand

due. Twitter handle upper right hand corner of your screen. The NASDAQ 100's seven month winning streak ended this

month. Is that necessarily a bad thing?

month. Is that necessarily a bad thing?

Historically the answer is no. In the

previous cases, the NASDAQ 100 was higher a year later. In every single case, the average gain 23.46%

simply telling us to keep an open mind about better thanex expected long-term outcomes.

And reading the tea leaves relative to the Fed, we have shifted relatively quickly from a market that was placing

roughly a 30% probability on an additional Fed cut in December, shifting it now to almost an 87 to 88%

probability. What does all of this mean

probability. What does all of this mean including this plant article in the Wall Street Journal? Unless something odd

Street Journal? Unless something odd happens, given what the Fed knows today they are planning to cut interest rates in December.

Also interesting, the sharp reversal that we've had over the past six trading sessions, we're very, very close to triggering breath thrusts again. And

when was the last time that breath improved in a similar manner when the S&P 500 was trading close to an all-time high? Here's the source of the answer.

high? Here's the source of the answer.

Here's the answer. October 18th, 2013.

Thus, we were curious to know how did the S&P 500 perform walking forward from October 18th, 2013.

The answer quite well. A year later, up 8%, four years later, up over 40%, 6 years later, up over 70%. And eight

years later, an eyepopping figure shown on your screen. As of the close on Friday, November 28th, we did not get the breath thrust trigger by the full

definition, but we came very, very close. Once again, credit where credit

close. Once again, credit where credit is due. In the past when something

is due. In the past when something similar has happened a year later in every single case the S&P 500 was higher

average gain over 30%. Once again not predicting anything and this is something that has happened and has been triggered based on this criteria here.

All of this helps us assess the probability of good things happening relative to the probability of bad things happening. And it's part of the

things happening. And it's part of the weight of the evidence.

It's important to note relative to our approach, we don't need these breath thrusts. They're really not directly

thrusts. They're really not directly related to any of the decisions that we've made over the past 3 weeks. And

just as we were trying to remain even keeled a week ago, we all know the only way that we can continue to use all of this effectively is if we head into next

week and every week with that flexible unbiased, and open mind.

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