LOOKING FOR WASHOUTS!

We do not predict washouts. We have no idea when washouts occur. We just know that often, severe market drops end on a gargantuan washout day. When one occurs, one needs to react because washouts and bear market rallies are usually strong. A washout day does not end the bear market but often will end a leg of the bear market.

A washout day occurs when the market has been getting hit, gets hit more…and gets hit more. Sellers who refused to sell…finally get sick enough and say enough. It is at this point of maximum pessimism that late sellers give up and finally sell…getting flushed out at the most inopportune time. Again, washout days occur when the masses get their most pessimistic AFTER a large drop. Washout days suck out the late sellers…eliminating everyone who wanted to sell in the near term. When there is no one left to sell at that juncture, markets stop going down. As soon as buyers show up, markets lift. You can see this on a chart as you will have a big, wide daily bar in price with that price finishing near or at the highs. Volume is usually very heavy.

As we write this, the Dow is down almost 2000 points in the past 13 trading days plus today’s nausea. One has to ponder whether we are getting close to some of this condition of maximum pessimism. We predict nothing. We have proved to you there is no reason to predict. But we await all outcomes at potentially opportune times. As we said, the biggest rallies do occur during bear markets…thus we pay attention.