OK -- it sounds like a really stupid question right now -- especially with the market in a volatile period. But money gets made by going against the crowd. In addition, simply thinking it doesn't mean we're going to do it; it simply means we're going to look at the markets to see what they are saying.
Here is the chart that led to this question. This is a 5-year daily chart with the MACD indicator. Notice the indicator is showing a big oversold condition.
Let's take a closer look at other periods in the last 5 years when we had a similar situation.
2003: The market had a similar reading once with a gain of about 20 points initially.
2004: There were three similar situations, but the overall trend was sideways. The gais would have been 5-7 points.
2005: There were two times with similar oversold MACD readings and the market gained about 10 points.
2006: There was one time with a similar oversold reading and the overall gain was about 20 points.
2007: There was one time with a similar oversold reading and the overall gain was 10-15 points.
So, we have a ton of winning situations if history repeats itself. Remember, there are always exceptions to every rule. In fact, there are no rules per se, simply observations.
Now let's complicate the picture a bit. Here is a weekly chart of the SPYs going back 5 years, also with an MACD line.
Remember in 2004 we had three daily oversold readings but we also had a downward/sideways trending market? Notice how the weekly MACD in 2004 is in a similar situation as the MACD in 2007? Compare that to the 2003 and 2006 rally when the weekly and the daily MACD were oversold.
In other words, it probably means we'll have a 5% rally followed by another pullback. This seems more likely considering the underlying credit market situation.