FWIW
An Important Bottom
By James J. Cramer
10/22/99 12:46 PM ET
One week ago today, the world shook and trembled. Stocks were sinking so rapidly that it felt like you would get airsick. People wanted out of every group. The banks shuddered. The drugs looked deadly. Anything related to tech was terrible. You could sense palpable panic, as sellers wanted to beat the giant waterfall of stock that would hit on Monday. My screen was blood red. My email was filled with people begging me to capitulate, telling me that the sliding market would sweep my fund the way a Tsunami wipes out the best beach houses.
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Alas, it was the bottom.
Last week was the worst Dow week ever. Everybody who wanted out sold. The selling finished. Oh sure, there were scattered pockets of selling all week this week. As there will be next week. But, in retrospect, it was the bottom.
Now, I will take a step further: It was an important bottom. Many groups, including the financials and the drugs, now act great. I called the bottom in the drugs last week, but I missed this bank move and am now scrambling to buy down and out discount brokers and banks that haven't moved too much.
Statistically, we like to find patterns that mark important bottoms. I know I focused last week on the VIX, which spiked to 35, marking a very bullish turn.
Now, I want to focus on a better indicator. When I worked with my wife, she always focused on the TRIN. Sometimes her whole screen would be nothing but TRIN when she was trying to call bottoms. (She used to do stuff like that all of the time.)
The TRIN fit my wife's needs perfectly. It is a short-term trading index (hence the name) that gets calculated the following way: You divide the advance-decline volume ratio into the advance-decline ratio. Or, as the Trading Goddess would say, this is a measure of pure panic. The TRIN usually trades around 1. That Friday it spiked to 4 and change at the opening and at one time crossed 5! That is amazing. You can look at a TRIN composite bar chart for two years and not see such a high reading. That if just plain off the charts high.
As a measure of massive selling pressure, this is a gasket blower. At precisely when it hit those levels that morning, we reached the bottom. It was a point of maximum fear.
The market plays many, many tricks on us. I am proud that I stood my ground Friday and bought into this weakness. But I didn't have to think too hard about it. The TRIN told me I had to. The TRIN never lies. When it gets that high, you have to buy, even if someone on CNBC is saying that markets never bottom on a Friday, or some other claptrap.
Last Friday, the market bottomed. It was an important bottom.
And a big selloff here would be a monumental present that I don't think we will get. There are too many people out of the market. And not enough people in.
That's when the water is very safe. That's when the swimming is best.
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