As you can see in the chart above, the Dow has fallen back to Re-Test last year’s low (RED LINE). The is weekly, not daily so that comes into play for Friday’s close.
Given the severity of the selloff in stocks in late August, it was not surprising to see the subsequent rally attempts fail. I want to note that testing the bottoms tend to be a process and indicates a possible upward move if the break below the bottom occurs.
The expression “retest of the lows” covers numerous market scenarios. A retest can stay above the recent low, hit the recent low, or exceed the recent low . . . but not by much. The key is we need to see evidence of a sustainable turn on our timeframe; something that has not happened over the past few weeks.
So, if you followed our Wealth Preserver arrow a while back, you are safe and have avoided this huge decline, or have made a few bucks on the inverse side.
Be prepared because retests usually fail and open an opportunity for a new green arrow to appear and we make money going up for months. If not, at least you are protected from a more severe market correction if it does not turn up . . . or are making some money from the decline.
It is all about correlation and deadly accurate arrows.
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Livio S. Nespoli has been a broker, registered investment advisor, and financial publisher since 1985.