For more years than I care to remember I have been asked a similar question. “At what level has or will the stock market bottom?”
It’s a fair question, but not always a simple one to answer.
But if you want a quick and dirty answer to whether the current market has bottomed yet, the answer is NO.
That does not mean there are not some trading opportunities in the short-run that will make it seem like we have hit bottom, but that does not make it a true bottom from my perspective and experience.
The level is not the issue and should not define a bottom. A market bottom is a process and each one is a little different. Still, I believe there are common features to look for.
Don’t ever believe that you cannot time the market. This is a myth that Wall Street — and frankly the financial media — continue to rail on about. I have worked with or for some of the best and deliberately least-known market operators and I can tell you that turning points can be identified.
People of a certain age remember when Pearl Harbor was attacked or when John F. Kennedy was killed. For me, October 14, 1974 is burned in my memory. That was the day the boss I was working for at the time came into the office and said the market was going to be up for the next three years. I was then amazed for the next three years at all the commodity and stock market turns that were forecasted with a combination of fundamentals, technical analysis and what passed at the time for quantitative analysis.
Let’s drill down on a few things now.
Second, let’s look at some quick-turning candlestick patterns to see if they have picked up a bottom reversal with confirmation. There are some lower shadows in this weekly chart, below, but that is not enough to give us a actionable reversal.
Some technical-oriented traders and analysts will tell you that the market is oversold (chart below) but oversold/overbought indicators such as the stochastic indicator really only work best in sideways markets. Once a market is trending up or down, analysts need to switch gears to trending indicators.
Third, of the 11 sectors in the market, how many have bottomed? Within those sectors, have 40% of the stocks made a bottom and turned higher? Are stocks breaking downtrends or breaking up from bases? Big difference.
Fourth, have stocks been ignoring bearish news? Has the market been ignoring bearish news, telling us that the bad news has been discounted?
Last, what is the new leadership that often comes after a significant decline? Can energy, commodities and defense stocks display enough leadership to lift the broader market? I don’t think so.
Bottom-Line Strategy
The market can recover for a few weeks but then roll over and continue lower again. We have experienced some fearful days in the markets and seen some throw in the towel on individual stocks, but I have yet to see professionals and individual traders dump en masse. Maybe we will see things come together in the May-June time frame. We’ll see.
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Source: https://realmoney.thestreet.com/investing/stocks/the-one-question-about-this-market-everyone-wants-answered-15938648?puc=yahoo&cm_ven=YAHOO&yptr=yahoo