You don’t realize it yet, but by the time you are done reading this article you’re going to learn how to determine when the market has bottomed. Imagine what you could do if you knew the exact bottom of the market…And, what kind of money you could make from selecting great companies at the right time and at the right price. Just like the old saying goes, “Buy Low, Sell High.”
Let’s go over the 5 Key Signs I use to confirm that a bottom has been established:
1. Psychological Market Indicators – I look at the weekly Investors Intelligence survey of newsletter writers to see the percentage of these advisers are feeling Bullish vs. Bearish. I also look at the Put-Call Ratio to see if it has spiked well passed 1.0 (a Bullish signal). Lastly I check the CBOE Market Volatility Index to see if it is over 50 (which is Bullish vs. under 50 is Bearish). In my free Trading Course I go over where you can find these Market Indicators.
Just remember, when things look the worse, that’s when the market recovers. Since the stock market always looks approximately 6 months ahead.
2. Price Capitulation – I want to see the market drop significantly and then recover by the end of the day. Much like was done on Friday, October 10th.
3. High Volume – On the Price Capitulation day I like to see volume up.
4. Follow-through Day – I want to see one of the major Indexes gain at least 2% in one day on significant volume 4 to 7 days after the Price Capitulation day. Just be careful because sometimes a false “signal” may be given and you will know it because the rally will fail rather quickly. To be a valid “follow-through” you will see strong action on higher. And Oct. 16th percentage gain and huge volume passes one of the biggest hurdles needed in order for a market recovery. This type of action has coincided with all new up trends. Just note that it usually takes several months for the new up trend to gain traction. Especially after the dramatic drop that has occurred.
5. Relative Strength – One of the last things I look at is how strong the market was on the Price Capitulation day vs. recent major down days. And looking at October 10th’s action, it looks stronger than many people may think. Suggesting “stealth” accumulation by Institutional Investors (the Mutual Funds, Pensions, etc.).
In conclusion, determining when the market has bottomed doesn’t take a crystal ball, it only takes recognizing the 5 Key Signs when they occur and being prepared to advantage of this opportunity with a proven stock selection system. And, if October 10th is confirmed as the bottom (and it has ALL of the classic Signs of a bottom), it will come at the perfect time to invest. In fact, it will be the best time to invest in the last 6 years. Additionally, Earnings Season just started and will present many excellent opportunities to invest in some great stocks at “discount” prices. This is what Institutional Investors will be doing, what about you?
Terrence “Nostradamus” Martin has 20+ years of market experience, is a Trading System developer and author. And for a limited time, you can claim his latest Trading Course “Secret Stock Selection System for Spectacular Returns” for FREE at http://www.tradingsystemreviewer.com/tradingcourse.html
