Former Goldman Sachs CEO Raoul Pal predicts the stock market will soon bottom after witnessing three consecutive weeks of corrective action.
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 the dip, bringing 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 (ie big banks) have not, and they will very likely use this correction in equities to cover their deeply underwater short positions and go long. This should provide a floor for how far stocks can fall, and we think we could get there in the next two weeks as seasonality begins to improve in September. Let’s see.”
Next, Pal weighs in on Bitcoin (BTC) after the crypto king plummeted along with stocks last week.
He says DeMark’s sequential indicator and relative strength index (RSI) suggest that Bitcoin will soon experience a bullish reversal.
“Bitcoin also came down this week to retest key support levels at around $25,200. We just activated a new DeMark daily 9 setup. These have worked well in the past in signaling a price reversal. 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. The DeMark sequential indicator aims to identify turning points in a market with a value of nine that signal 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 the Ethereum (ETH) smart contract platform is showing bullishness on the RSI indicator.
“ETH is also the most oversold in RSI terms since June last year and appears to have formed – if anything – a major bull flag pattern (bullish).”
A bull flag is a technical pattern that indicates that an asset is in the middle of consolidation before continuing an 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