Anatomy of a Market Bottom
I'm not a big fan of calling bottoms or tops. Frankly, it's a guessing game, like touching an electric stove when you think it may not be on...but this game leaves most with burned hands. I prefer going for trends and higher probabilities. However, unless you think there is no value in equities (and yes, some actually DO believe this), then at some point of a market drop there will be a turn higher. So, perhaps a bottom is at hand (pun intended). There are some characteristics this time around that may prove different than previous bottom attempts.
The Metrics Say OVERBOUGHT
This market is simply overdone, overbought and due for a correction. Um, that was said about three weeks ago! So, here we are, three weeks later and up about 10% more. Those looking for the pullback in time were hit rather hard. However, markets are showing complacency with a VIX down around 33, put/call ratio extremely low and bullish sentiment rising. The MacClellan Oscillator is flashing a big sell signal, and the summation index looks to rollover. Finally, risk may be a factor...as the euroyen has tumbled below support.
Rotation and Leadership Means a Shallow Pullback
Sure, the markets are up 10% or so in that time, but some groups have soared. Take the homebuilders. Left for dead in 2008, they are showing new leadership when money is rotated out of other sectors. Commercial real estate, financial, retail and restaurants also fall into the same category. I'd bet a pullback may only be of the lighter variety, but we'll watch volume levels and see whether some good support is breached.
The Six Week Cycle Program
Market rhythm is hard to measure but it sure makes for nice symmetrical patterns. One of the more reliable patterns is