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Is the Stock Market (Still) Trying to Bottom? (PART 2)

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Is the Stock Market (Still) Trying to Bottom? (PART 2)

S&P 500 SP: SPX

CMT Association

To see the original post I’m referring to, please click on the image below:

Is the Stock Market (Still) Trying to Bottom? (PART 2) - 2022

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While the S&P500 hasn’t been so friendly to us in the time that’s passed since the post above, and while prices have certainly fallen further, I continue to find evidence that this market could be finding a bottom.

Last time, I mentioned that the momentum indicator, RSI (which stands for Relative Strength Index), had remained in a bullish regime, despite lower prices at the time. I also illustrated the divergence in the MACD histogram, as well as the initial MACD bullish signal triggered.

 

This time, I wanted to share that, despite even LOWER prices in the S&P500, we can observe another two pieces of positive evidence that suggest the market MAY be trying to form a bottom:

  • While prices have been lower (see chart), again, RSI remains in a bullish regime, holding above 30, even after the cascade decline a few weeks ago. This is very encouraging for the bulls.
  • Monday, the market gapped up, closed higher, and did so on relatively strong, above-average volume (see arrow over volume). Furthermore, this high-volume, positive day in the market occurred six days after the most recent low, and printed higher volume than the previous trading day. This qualifies as a “follow through day”, according to research by the legendary Bill O’Neil.

Taking all of these things into account, what we need the market to do is one of two things to confirm we could be seeing a bottom forming.

1. If this most recent bounce pulls back, we’ll need to see the June lows hold.

2. If it consolidates, that’s good (and definitely better than a pullback), but we then need to see the S&P500 break north of the June 2nd high.

If all these things can happen (and it should take time, by the way), then we could find ourselves closer to the end of this bear market than the beginning.

Stay patient!

Adam D. Koós, CFP®, CMT, CEPA
Libertas Wealth Management Group, Inc.