By: Robert Thomson
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, imagine what kind of money you could make from selecting great companies at the right time and at the right price.
Just remember to call me from your private beach, while holding an exotic umbrella drink in one hand and talking to me, over the roar of breaking waves, on your iPhone with your other hand.
Now, let's go over the 5 Key Signs I use to confirm that a bottom has been established:
1. Psychological Market Indicators - These are great tools to get a pulse of how investors are feeling. It is a good indication of the mood investors are in. Thus allowing you to determine how Bullish (optimistic) or Bearish (pessimistic) they are.
History has shown that the more Bearish (pessimistic) investors are, the closer we are to a bottom. This is an excellent contrarian indicator. Likewise, if the psychological market indicators are hitting “new limits", this is an even more powerful signal. 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. Due to the fact that the stock market looks approximately 6 months ahead.
2. Price Capitulation - In plain English, this is when the market drops significantly and then recovers 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 (the S&P 500, the Dow or the Nasdaq) gain at least 2% in one day on significant volume 4 to 7 days after the Price Capitulation day.
Just be careful, sometimes a false “signal" may be given. However you will know it because the rally will fail rather quickly. To be a valid “follow-through" day you will see strong action on higher volume. And Oct. 16th's 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 a dramatic| drop, like the one we just had.
5. Relative Strength - One of the last things I look at is to see 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 (buying) 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 take 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. And, according to a recent article, it looks like Warren Buffet seems to also think now is a time to start re-investing in Stocks. Seems like he has started buying.
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?
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