Somewhere over the rainbow…”the dreams that you dream of, dreams really do come true…”
The gloom, the mist, the darkness, the thunder, the rain, the storm, the lightning. After the thunder rolls and the lighning strikes, the rainbow appears. Today that rainbow appeared, but you would never guess it from the final results. The S&P 500 finished down 10.59 points, the NASDAQ down 2 points, the Russell down 7 points, the VIX up a point or so and the super spike theory we predicted some weeks ago in the SKF came to fruition. So, where is the rainbow? Keep reading!

We had targeted 1,240 as a low on the S&P 500 today and that was the precise point from which the S&P 500 started to rally intraday. The NASDAQ also showed strength from near the 2,200 marker, which it hit back in January and March. Both times it rallied soon afterwards. One of our members queried why we are leaning bullish at this time when everything looks so bearish. Well, we like to stand aside at the beginning of a carnage. But as Buffett famously said (and we’ll paraphrase), if you are bullish on the markets, you want stocks to go lower!
This seems like a paradox but it is easily explained by compounding returns over time. Let’s say I see a stock trading at $20 per share and have $20,000 to deploy. (Neglecting smart risk management!)…let’s say I buy 1,000 shares. If the stock rises up to $30, I make $10,000. But what if I had been patient while the stock dropped to $15, what would the impact of buying with the stock just $5 lower have been? It turns out I could have made 100% on my investment with the stock rising to $30 instead of 50% as was the case when purchasing the stock for $20 per share. Buying after a 25% decline meant the difference between m… 
















Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...