How To Know When Market Bottoms .. from IBD on 5/22
On 5/22, IBD published "Lesson 14" from Bill O'Neal's latest book: 24 Essential Lessons for Investment Success.
Stan, perhaps you or other thread participants can put Bill's suggestions to use here. For those
interested, I will transcribe the article summary, as it appeared at the end of the 5/22 article in IBD:
O'Neal, IBD's chairman and founder, constantly emphasizes that the best time to get back into the market is after a correction or bear cycle at the moment the market starts uptrending again. In order to do this, it is essential to be able to spot a market bottom. In Lesson 14, O'Neal discusses the signs to look for to detect a market bottom.
- Bear markets create fear and uncertainty. When stocks hit bottom and turn up to begin the next bull market loaded with opportunities, most people simply don't believe it.
- At some point on the way down, the indices will attempt to rebound or rally. A rally is an attempt by a stock or the general market to turn up and advance in price after a period of decline.
- Bear markets normally come in two or three waves, interrupted by several attempted "false" rallies that usually fizzle after 1 to 3 weeks an occasionally 5 to 6 weeks or more.
- Eventually, one of the rallies will "follow-through." A "follow-through" occurs when one of the indices closes up 1% or more with a jump in volume from the day before. This confirmation will usually happen on the fourth to seventh day of the attempted rally.
- The Dow, S&P 500, and Nasdaq indices, along with the IBD Mutual Fund Index are your best sources for analyzing the market's condition and determining if a top or bottom has occurred. Also, observing how leading stocks are acting can be another indicator of a market bottom.
- Most technical market indicators are of little value. Psychological indicators like the put/call ratio can help confirm changes in the market's direction.
For those interested in reading the complete article, perhaps available at a local library, the complete article "How To Know When Market Bottoms, Let Indexes Confirm Bear Market Bottom" appeared in the "Investors Corner" section of Investors Business Daily on 5/22/2000. |
