Skip to main content

A sinking market has to hit bottom sometime -- will it be soon?

It's been roughly six months since I've done one of these weekly market analysis posts but with stocks grinding lower for six straight weeks I thought this would be a good time to pull out the charts and see where we stand.

The view from Alert HQ --

For those readers who are new to TradeRadar or who don't remember what this is all about (and I don't blame you if you've forgotten), the data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6200 stocks and ETFs each weekend and gather the statistics presented below.

In this first chart below we count the number of stocks above various exponential moving averages and count the number of moving average crossovers, as well. We then plot the results against a chart of the SPDR S&P 500 ETF (SPY).


This chart makes it clear we are reaching the extremes of last May and June. One could say that our "summer swoon" is right on schedule. Notice, however, that during the last sell-off, while our moving average indicators began hitting their extreme lows in May, SPY didn't bottom out until over a month later.

In the current situation, we are just barely approaching what might turn out to be a low for this downturn. If things proceed as they did last summer, we will likely need to work through a bottoming process before the market can move solidly higher again. That means several weeks of choppiness before the up-trend resumes.

The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis.



Here, too, we see the chart reaching extremes. Though this is a messy looking chart, there is some interesting data hidden in there. For example, for the last year or so, the Aroon data has oscillated between roughly 500 at the low end and 3500 at the high end. Comparing the latest data to that range, you could make the argument that we can't get much more oversold than this. Look especially at the red line showing how many stocks are  now in downtrends - it's just about reached the worst level that was hit during last year's significant downturn.

Conclusion --

I would submit that stocks are pretty close to a bottom. I base this expectation on two things. First, the charts presented above suggest that, as our indicators reach extreme levels, the sell-off doesn't have much further go. Second, economic growth may be anemic but it is growth nonetheless which, in turn, implies that the current negativity is overdone. The Old  Professor explains this well in [ this post ] at his site A Dash of Insight.

I'd also like to point out that the chart of SPY shown above is based on weekly data and is displayed on a non-logarithmic scale. Note that a trend line can be drawn connecting the lows in 2009 and 2010 and you will see that the latest price is just about on it. Will the trend line hold? Given how oversold the market is and the passable (though not great) economic backdrop, I believe it will (see previous paragraph). I wouldn't be surprised to see a temporary break below it, perhaps a big capitulation day, but I think a rebound is likely. We shall see if I'm right.

This week provides some data that has only a so-so chance of shaking the market out of its doldrums: Retail sales, the Producer Price Index (PPI) and Business Inventories.

So as the next few weeks unfold, let's see if the grip of the bears begins to weaken.

Disclosure: none

Comments

Popular posts from this blog

Running TradeRadar on Windows 7 and Windows 8

Development of the original TradeRadar Stock Inspector software was begun back in the days before Windows 7 and Windows 8 were available.

As these newer versions of Windows have become more popular, we have heard from some users that they are having problems installing and running TradeRadar on their newer PCs.

The good news is that TradeRadar will work just fine on Windows 7 and Windows 8. All you have to do is adjust the Windows Compatibility Settings to ensure TradeRadar runs as intended.

It is recommended that you can apply Compatibility Settings when running the initial installation; however, it is also possible to apply Compatibility Settings after the program has been installed.

Prior to installation
After downloading the install program, go to the folder where you have stored the TradeRadarStkInsp_7_Setup.exe or TradeRadarStkInsp_7_PRO_Setup.exe executable. Right-click on the executable file and select Properties. Click the Compatibility tab. Adjust the Compatibility mode to …

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position.

This first post in the series starts at the beginning: getting good investment ideas.

Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets.

As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professionals and …

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas.

Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what to lo…