There have been some bright days here and there, but overall, it’s been a rough year so far for the markets and exchange traded funds (ETFs).
When things have been this way for so long, it’s tough to decide whether it’s going to get worse or if it’s already gotten as bad as it could possibly get. Anne Kates Smith for Kiplinger has a list of signs of when the market is at or near the bottom, courtesy of Jim Stack of InvesTech Research. Stack has a good track record of calling bottoms:
- VIX Index of Options Volatility: High levels equal high fear. This will be the predominant sentiment when the bottom occurs. The recent high was 31.2. Compare that with a reading of 45.1 in October 2002. According to this, we’re not at the bottom yet.
- Percentage of Stocks Trading Above Their Average Price Over a 200-Day Period: Low readings mean that a market sell-off is overdone and most likely to reverse. The recent low was 13.8%, compared with 4.6% in 2002. No bottom here.
- Ratio of Advancing Stocks to Number of Declining Stocks: Averaged over the past 90 days, low readings mean an over-sold market. The recent low was 83.9%, compared with 78.3% in 2002.
- Declining Number of Stocks Hitting 12-Month Lows: A decline in Bear market leadership on The New York stock exchange. Currently, about one in seven is hitting lows, and it’s not indicative of a bottom. Within the early stages of a bull market, fewer than 12 stocks will be hitting yearly lows.
- Level of Bearish Sentiment: A stratospheric level of this sentiment is actually good – when it is at extremes the market is due for a turn.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.