Former Goldman Sachs CEO Raoul Pal predicts the stock market will soon bottom out after witnessing corrective action for three straight weeks.
In a new blog post the macro expert say that the S&P 500 (SPX) is likely to enter oversold territory as early as this week.
He predicts that institutional buyers will step in to buy up the dip, driving a market bottom.
“Furthermore, at this rate of sell-off, we will return to oversold conditions for the S&P 500 this week or next week…
Remember, retail money has been long this year, but the pros (i.e. the big banks) have not, and they will very likely use this correction in equities to cover their deep-underwater shorts and go long. This should provide a floor to the extent to which equities can fall, and we think we could get there in a week or two as seasonality begins to improve in September. Let’s see.”
Next, Pal takes a look at Bitcoin (BTC), after the crypto king plummeted along with stocks last week.
He says DeMark’s sequential indicator and relative strength index (RSI) indicate that Bitcoin will soon experience a bullish reversal.
“Bitco also fell this week to retest key support levels at around USD 25,200. We just activated a new DeMark Daily 9 configuration today. These have worked well in the past in signaling a price turn. Moreover, with a current RSI of 20 (yes, 20!), Bitcoin is the most oversold since June last year.”
The RSI is a commonly used momentum indicator that aims to determine whether an asset is overbought or oversold. DeMark’s sequential indicator is designed to identify turning points in a market, with a value of nine indicating a possible trend reversal.
Bitcoin is trading at $26,125 at the time of writing, down 0.3% in the past 24 hours.
Pal also says that smart contract platform Ethereum (ETH) is bullish on the RSI indicator.
“ETH is also the most oversold in RSI terms since June last year and appears – at least – to have formed a major bull flag pattern (bullish).”
A bull flag is a technical pattern that indicates that an asset is in the middle of a consolidation before continuing its upward trend.
Ethereum is trading at $1,674 at the time of writing, up 0.1% over the past 24 hours.
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Image generated: Midway through the journey