The S&P 500, the stock market's benchmark index, has made a stunning recovery, adding over $5 trillion to its market capitalization in just 20 days. This rally translates to about $250 billion in inflows per trading day, a significant bounce back after hitting its August 5 lows. This swift rebound effectively matched its annual return in that short period.
The Kobeissi Letter, an economics outlet on X (formerly Twitter), attributes this sharp recovery to a strategy that focuses on capitalizing on polarized sentiment in the market. The outlet emphasizes that following the crowd rarely pays off in the long run. The S&P 500’s Relative Strength Index (RSI), which dropped from over 70 to below 30 in less than a month, indicated that the index went from being overbought to oversold rapidly. The last time the RSI experienced such a significant drop was when the index bottomed out in early April.
This recent surge underscores the volatility and the importance of not succumbing to herd mentality in trading, as significant shifts in market sentiment can lead to substantial gains or losses in a very short time.
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