The recent sharp selloffs in stocks and commodities have fueled an incessant drumbeat of pessimism plaguing the financial markets. Greece is doomed, Europe is fracturing, China is slowing, the US faces a recession, the sky is falling! You’ve heard all the popular bearish arguments countless times. But as usual at major turning points, popular consensus is dead wrong. Oversold markets are very bullish!
As a battle-hardened contrarian forged by decades of trading, I relish oversold markets. They spawn some of the best entry prices ever seen, the ideal time to buy low (a necessary prerequisite to selling high later). The word “oversold” simply means a price has fallen too far too fast to be sustainable. It happens when traders’ collective fear grows excessive, flaring up brilliantly before rapidly burning itself out.
The stock market has been going through a violent secondary correction for the past two months. This ALWAYS happens in bull markets, and has usually occurred at least twice in every single historical bull market. This current secondary reaction might proceed into a ”deflationary” bear market; we’re close.
