CBI Junps Suggesting theMarket Will Soon Bounce

Yesterday’s huge selloff caused the CBI to spike up from 4 to 17. In the past I’ve discussed how a CBI of 10 or higher has typically been a good long signal. I’ve shown that a trading system that went long when the CBI hit 10 or higher and then sold only when it had dropped back to 3 or lower showed a very favorable edge. Below is an updated list of all instances since 1995.

Note that while the returns are very good, many of the trades suffer some sizable drawdown along the way. I believe there is an upside edge but it is unliekly to be an easy trade.