Trading Deck: Maybe not THE bottom, but potentially A bottom
- Posted by JC Parets
- on October 6th, 2011
Here is my latest post at The Trading Deck on Marketwatch.com:
By JC Parets
Bottoming is a process and not a single event. It takes time. There are a few signs out there hinting that a near term low is near.
First of all, the 1,074 lows recorded Tuesday in the S&P 500 came on just 13.1 billion shares traded. This is substantially less than the 17.9 billion shares that changed hands on the previous 2011 low on August 8th. This reduced selling is one sign that the pressure to dump stocks has decreased.
To put sentiment into perspective, the amount of bearish U.S. investment advisors jumped last week to its highest level since March 2009. According to a weekly survey by Investors Intelligence released Wednesday , U.S. equity bears rose to 45.2%. The last time we were at these levels, the S&P 500 was doubling in value. Meanwhile, U.S. equity bulls dropped to 34.4%, the lowest level since August 2010. The S&P 500 went up 30% in 6 months off those August lows last year. History doesn’t have to repeat itself exactly, but we’ll take this contrarian indicator as a feather in the hat for the bulls.
In addition to extreme sentiment levels, seasonality is also playing a role. Historically, the best three-month period for stocks is between November and January. Moreover, according to my trusty Stock Trader’s Almanac , the best six-month period is between November and April. We have all heard the old saying, sell in May and go away . But the opposite of that is also true and asks for November purchases going into that time of the year.
So seasonality is clearly in the bull’s favor. But price action is really all that matters here. Monday, the S&P 500 broke down below critical support levels only to rally back fast, causing a short squeeze of historic proportions. I haven’t done the back checking, but I find it hard to believe that there are too many instances where the S&P500 rallied 6% in less than 7 1/2 market hours.
Read the rest at over at The Trading Deck
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J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He earned the Chartered Market Technician designation (CMT) in 2008 and now actively manages money incorporating Technical Analysis and Behavioral Finance into his practice More
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