While it is way too early to make any definitive or even probabilistic statements, it is possible we have seen the lows for the year - emphasis on possible. The S&P 500’s relative strength (RSI) remains below 50 on a daily chart (closed yesterday at 45). An RSI above 50, and better yet 52, would greatly increase the odds of at least a short-term rally (2 to 3 weeks). Until RSI can make some lasting progress, yesterday’s gains alone do not mean we are out of the woods yet; maybe closer to the edge of the woods, but not out.
The CCM BMSI closed Wednesday at 993, up from Friday’s reading of 834. Historical Bi-Weekly BMSI scores between 800 and 1,200 occurred during recessions, early-to-mid cycle expansions, and late cycle expansions. Historical risk/reward ratios are shown in the table below. Higher risk/reward ratios are more favorable. A ratio of 1.00 would denote a situation where the upside and downside risks are equal. Recent economic data, including the ISM Non-Manufacturing Composite Index, continue to point to slower growth, but not a double-dip recession. If the odds of a double dip remain low, then the late cycle expansion figures in the table below become less concerning. We believe we will get slower, but positive growth going forward, which is based on hard economic data in hand, not an opinion about future events. If that is the case, the most relevant risk/reward ratios in the table below are the early-to-mid cycle expansion figures present on the top line, which are very favorable. A green NA is the best situation where all historical cases saw a higher S&P 500. A red NA is the worst case scenario where all cases produced stock market losses.