The market suffered through its worst June since the Great Depression, and curiously, it's the seriousness of this sell off that has me cautiously optimistic about the possibility that we are approaching a low in stocks.
If you look at the chart below of the S&P 500 index, you can see that we've nearly hit the lows set back in March.
Usually, this stage of the market game brings about a curious phenomenon that occurs within every bear market, and that phenomenon is called a bear market rally.
I know it's counterintuitive, but within every bear market is the inevitable sharp rally to the upside. These bear market rallies are usually short lived, and they usually break down quickly. Now, in the wake of the most recent downtrend in this market, my next expectation is that stocks will mount one of these bear market rallies.
This bear market rally could be on the order of maybe 3% to 5%. Now I am not saying for certain we are going to have a rally, but given the technical factors in this market -- along with the extremely oversold status in stocks right now -- I do think the chances of a rally are much better than the chances of a sustained decline.One way to take advantage of what could be a bear market rally ahead is to make some short-term trades in some of the most beaten up market sectors.