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This Indicator Has Been 100% Accurate Since 1940
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This Indicator Has Been 100% Accurate Since 1940

Tend to be clearly bullish

Jun 25, 2023
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Asymmetric Finance
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This Indicator Has Been 100% Accurate Since 1940
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Source: Pexels

For over two years now, we have been sharing two weekly newsletters, allowing thousands of subscribers to build an asymmetric portfolio. This approach ensures they can benefit and maintain over 50% in cash even during market downturns. We have achieved this by always being transparent, delivering truthful insights, and avoiding unrealistic promises of unattainable returns.

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The market is always filled with pessimistic narratives, a trend that has persisted for decades and will continue in the years to come. Let's recall the extreme pessimism that arose when an agreement on the debt ceiling was not reached in the United States.

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ΟΝ DEBT 1F ωΕ DON'T 
ΟΟ SOMETHlNG 
ΗΑΗΑ 
ANOTHER 
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MEETlNG 
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DEBT 
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If the debt ceiling had not been raised, we would have witnessed the country's first default in history, which would have led to the United States losing its position as a global power and plunging us into a deep recession. It is understandable that this scenario caused concern.

Currently, we face other issues that also generate unease, such as what is happening with Binance or the situation of inflation. In the future, new concerns will arise, such as the possibility of excessively low or even negative inflation. It is important to highlight that the real inflation in the United States, according to Truflation, is 2.83%, a much more realistic figure than the ones presented by the government.

Truflation Rate 
USA Truflation 
ID 
06 / 06 / 2023 
O 
V 0.02% 
O 
US govt reported rate: 4.9% 
Truflation Timeframe 
12% 
11% 
10% 
9% 
8% 
7% 
6% 
5% 
4% 
3% 
2% 
JUL 
1M 
MAR 
6M 
AUG 
SEP 
OCT 
NOV 
DEC 
JAN 
FEB 
YTD 
APR 
MAY 
JUN 
2.83% 
YTD Low 
6.31% 
YTD High

One of the key indicators for evaluating any type of asset is the RSI (Relative Strength Index). Although I don't usually rely on technical indicators in my day-to-day activities, I firmly believe that limiting ourselves to a single type of investment closes us off to new opportunities and hinders our growth as investors and individuals.

The RSI indicates whether an index is overbought or oversold. Recently, the weekly RSI of the S&P 500 index entered an "overbought" condition after reaching a minimum in the last 18 months. Historically, when the market confirms its bullish trend, an initial overbought reading after a downtrend is common.

$SPX S8P 500 Large Сар lndex lHDX 
2-Јип-2023 
20 2 
20 2 
о 
еп 422B71 
h 42дов7 Low 41вв:15 Close 428237 
20 з 
20 з 
Volume 
1228 
@ StockChav-tscom 
+7ВР2 +183% • 
4800 
4750 
4700 
4650 
коо 
4550 
4500 
4350 
4282.31 
4250 
4200 
4150 
4100 
4050 
4000 
зд50 
здоо 
3850 
звоо 
3750 
3700 
зв50 
звоо 
3550 
3500 
В2Р1

In fact, this latest signal activated last Friday is the eighteenth since 1949, and the last time the indicator failed was in that year when the market reached a new low after the signal. A graphical analysis by Mark Ungewitter shows all the events in which this indicator has been activated in the last century.

10000 
1000 
100 
10 
S&P 500 vs 14-week RSI 
Initial RSI >60 following SPX 18-month low 
Pre-1949 failures 
Comments: Lower lows followed the July 1938 and 
April 1948 signals. Severe whipsaw followed the 
August 1932 and July 1947 signals. 
@mark_ungewitter 
0 
100 
20

In total, there has been an 84% accuracy rate in terms of the continuation of the bullish trend. It is interesting to note that the 16% of errors occurred in four events during the 1930s and 1940s, and two of those errors had no significant impact because the market remained in a sideways range without further depths.

While there are no absolute certainties in the market, it is encouraging to see that it continues to show classic signs of bullish momentum that support the previous signals we have discussed.

As shown in a chart provided by Sentiment Trader, these bullish phases of the market, where the RSI surpasses 60% after being below 40%, tend to be clearly bullish.

Growth of $1 in SPX: Held 9 months after RSI rises from below 40 to above 60 
—Growth of $1 
'81 
'85 
'87 
'89 
91 
'95 
'99 
01 
'03 
'05 
'07 
'09 
'11 
'13 
'17 
'19 
$11 
$9 
$7 
$5 
$3 
$1 
'21 
'69 '71 '73 75 
Source: Bloomberg 
'77 
'79

This analysis, combined with the other one, seems to indicate a completely bullish trend in the coming months.

This quantitative approach to observing the markets involves counting the occurrences of a specific event (in this case, overbought conditions) and analyzing what happens in the subsequent period. As we can observe, what is considered "overbought" generally leads to further overbought conditions, and that's how trends are generated.

However, in the market, many people do not observe medium-term trends and have an extremely short-term perspective, which leads them to consider overbought situations as dangerous. They think that the market has risen too quickly and, therefore, is bound to decline, as if the market had some kind of physical property where gravity pulls it down once it goes up.

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