You will now find out how to profit from a special oversold investment opportunity that does present itself very often but when it does you must act immediately and make substantial profits in a very short time frame.
Before getting into low level details about this oversold investment opportunity, let's first describe one new technical term called the 'Band offset'. Remember our basic
basic technical indicators page
where we discussed the term trading bands which was for example for the lower band the distance between the moving average and the lower band that could be expressed in terms of percentage or points. Well the band offset is the distance that is outside the band. If we talk about the lower band it will be the distance under the lower band. For example let's say that SP500 at a given day is 25 points under the lower band (low of the day not close), and let's assume that the band size (moving average - lower band) also equals 25 points, we would then say that our band offset is 1. If we are 50 points under the lower band then our band offset would 2, etc.
Here is a graphic example of SP500 september 2001.
Remember we said that any index market tends to stay inside the trading bands more than 90% of the time. But when we get into fast falling markets we encounter special oversold market conditions. With our index trading system we noticed that when we have a band offset of 2 or more we have a very special oversold investment opportunity, one that we don't want to miss.
Let's outline when those special oversold investment opportunities occured and how much profit was possible to make.
- August 23rd 1990 we had a 2.42 band offset at 307. Four days later we were at 324, a 5.5% profit in only four days
One month later we had a double bottom on september 24th at 304. It followed a solid 10% rally over 2 months.
- April 4th 1994 we had a 2.55 band offset at 438. Four days later we are at 451, a 3% profit in only four days
It was the start of complete intermediate cycle that yielded a 5% profit in less than 2 monts
- July 16th 1996 we had an intraday low at 605 and a band offset of 2.72. 3 days later we were at 643, a 5% profit in only 3 days. A month later we had an upward swing in the market of more than 20% over 3 months.
- October 28th 1997 we had an intraday low at 855 and a band offset of 2.21. 5 days later we were at 939, a 10% profit in only 5 days. 2 weeks later we had an upward market swing of more than 20% over 4 months.
- August 31th 1998 we had a close at 957 and a band offset of 2.46. 8 days later we were at 1030, a 7% profits in only 8 days. A month later we had a double bottom and we were up for a solid 20% plus profit over 3 months.
- April 14th 2000 we had a close at 1356 and a band offset of 2.05. 5 days later we were at 1477, a 9% profit in only 5 days. A few days later we had a double bottom that triggered a small rally yielding a 4% profit over the next 6 weeks.
- March 22rd 2001 we had an intraday low of 1081 and a band offset of 2.17. 3 days later we were at 1182, a 9% profit in only 3 days. A few days later we had a double bottom that triggered a 20% profit over 2 months.
- September 19th 2001 we had an intraday low of 984 and a band offset of 2.17. The market continued to get lower for 2 extra days at 945 and a band offset of 2.55. 5 days later we were 1041, a 6% profit from the first reading and 10% from the second reading. We all remember it was the post 9/11 event. From the lowest point we had a 20% profit over the next 2 months.
- July 19th 2002 we had a close at 848 and a band offset of 2.44. The market continued to fall for 2 extra days at 798 and a band offset of 3.16. Four days later we were at 900, a 5% profit from the first reading and 12% profit from the second reading. It generated a 20% profit from the lowest point over a month.
First we can say here that all those 9 special oversold investment opportunites not only generated instant profits but were always the beginning of even much bigger profits in the next months.
We can also see for sure that we must wait for the offset to get to at least 2 to enter the market. We might have to act during the day instead of waiting at the end of the day.
It may sound a bit complicated technicaly to take advantage of those special oversold opportunities but the good news is that it will be all calculated for you and published on our signals page every day. The 2% band offset point will always be published every day on the signal page so you can get ready to act during the day if this opportunity comes along.
Click here to go to the trading signals page
Of course it does not happen very often not even every year. The longest time until it occured was 3.5 years between august 1990 and april 1994 so far in the period covered.
The best way to really profit from this special oversold investment opportunity is to used SPX or OEX options. You can also use SPY options with less leverage. See the
Options investment tool
for more information on how to use options. For this special oversold investment opportunity you buy call(s) options around the calculated point and then watch the signals page about when it is time to get out. As we have seen above we never wait more than 10 days to exit and most of the time it could even be 3-5 days. You can also get out on your own when you feed you have enough profit. At the current 1000 level On SP500 we can expect an average of 50 points profits which means about 5,000 USD for each SPX points traded and about half of that for OEX options. The SPY options will yield about 10% of SPX profits.
Let's not forget also that those special oversold investment opportunities were the beginning of several major upward movement a few weeks or a few months later as much as 20-25% on SP500 and more on the Nasdaq 100. So passing out on those oversold opportunities means leaving behind a lot of money on the table.
Click here to find out how to indentify oversold conditions in a bear market
Click here to return to the index trading system description page.
