Was That The Bottom?
Yes! For now…
The wild swing yesterday should mark the low for the near term. Here’s why:
• It might have been a capitulation bottom. Capitulation bottoms are typified by a sharp turnaround on heavy volume. And you have to have both of those elements. The CPI came out bearish but the market turned bullish and ended higher by the end of the session. I wish the volume was bigger. It was big but not bigger than the volume about a month ago. For now, I will say it is big enough but there is some doubt there.
• It smelled like capitulation to me. The market dropped in a panicky way. That happens when the bulls give up and sell quickly.
• It created a key reversal. A key reversal is when the price makes a lower low and closes higher plus the whole range of the day is outside the range of the previous day. It is considered the most powerful daily bar formation. Normally, I don’t pay a lot of attention to key reversals against the trend but the other factors in this list suggest that this will be a valid signal.
• Seasonality says that the market should bottom in October. The chart, from StockTradersAlmanac.com (recommended) shows that the market bottoms in October more than any other month. We then should start a normal seasonal rally.
• Actually the seasonal rally at the end of the mid term election year tends to be an extra strong one. The reason is that it is really the beginning of the strongest seasonal of the four year presidential cycle: the pre-election year.
But this could be another bull market that fades out in a month or two.
I can’t really get bullish until our Asset Allocation Model (we teach this in our WealthbuilderInsider.com membership program and in our How To Make Money In Bear Markets course.) turns bullish. Right now it is about -5 on a scale of -9 to +9. The bottom line is that it will really take an easing by the Fed to get really bullish.