After the S&P 500 went through the first prolonged consolidation period in a year during the month of September, a volatile bottoming process in the beginning of October led to an exceptionally strong rally for the rest of the month: We saw an almost vertical 10% move to a new all-time high in a string of green days.

While I don’t expect stocks to rally on in a straight line, the positive dynamic can be succinctly distilled into a simple formula :

Exceptional Long-term Momentum + First Significant Consolidation + Instant Pessimism = High Probability for Positive Returns over 2 – 6 Months