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Where Is The Bottom
Of The Market?
If you read my
weekly blogs,
then you will know we were looking to retest the lows in the market.
Well we
did it with the demise of Bear Stearns and the subsequent decline in the market
on March 17th. Now I do not profess to be the Great Nostradamus, but I do
think we are close to the lows if we have not seen them already.
Often
when the market finds its lows, several things need to happen. First, we need a
major corporate turning point. We got that with the demise of Bear
Stearns.
In
addition, the fear in people needs to hit near a high as marked by their
sentiment. We did this with the VIX, or volatility index hitting near its
high of 36. In addition, Matt Laurer on the Today Show on Tuesday morning
was claiming the stock market was terrible and it did not look good.
This late
to the game attitude is just what us contrarians look to hear. In next month's
newsletter, I will go into this further as I show you how most invest
unsuccessfully in the markets.
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Lastly, I look to see how the fundamentals of the market are
behaving. In the chart at the top this page, I am showing you the net
number of new lows and new highs over a 10 day period.
In the latest downturn in the market when Bear Stearns was
falling from grace, the S&P 500 retested its lows. It hit near the lows and
bounced back on that Monday. At the same time, the net number of new lows was
significantly diminished.
This means most of the stocks were not retesting their individual
lows even though the market was. With this failure of the average stock not
going lower, it has traditionally been a sign the stock market has run its
course to the downside.
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I am not
saying we could not retest the lows again, but the pattern above suggests we may
have hit the lows. We may move sideways for a bit prior to moving higher, but
ultimately, we will see the market move higher over the next 12 months. -
Troy C. Patton - CPA
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 Have
a finance question or a comment for me?
Send
it to
tony@financegeeks.com
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