I explained on Wednesday that forming a bottom is not an overnight process. I still believe that to be the case.
And even with the strong rally we’ve seen this week and this month, I doubt the bottom for the market is going to look like a clean, V-shaped reversal.
But whatever the bottom may end up looking like, I am ready to make my call today that the bottom is likely in for the market.
The three top indicators I’ve been watching for signs of a bottom have all triggered now, so let’s review them today and see if it’s time to start buying stocks again…
Breaking the Cycle
For the last six months or so, the S&P 500 has been making lower lows and lower highs.
However, with this week’s action, the index has broken the trend and made a new higher lower and higher high.
We also saw a nice pivot formation, shown by the blue zagging line, which is exactly what I look for in stock breakouts.
The market action became more and more shallow as price tightened against resistance and then broke through.
Traders Follow Through
The other indicator I’ve been looking for is a follow-through day.
If you’re not familiar with the term, I define a follow-through day as a 2%+ gain in the cash index in a day on increased volume over the previous session.
That previous session doesn’t have to be an up day, but the follow-through day must be up 2% or more from the previous day’s close.
The volume must be higher than the previous day.
And on July 19, the S&P 500 was up 2.76% on the day with increased volume over the prior day.
While a follow-through day is not a guarantee that stocks have bottomed, it greatly increases the chances of the market rallying from here.
Panic Buyers Arrive
And finally, the last indicator that leads me to believe the bottom is in what I call a 90% up-day on increased volume.
What I mean by that is a day when there is increased volume over the prior day and 90% or more of the volume is advancing rather than declining.
This basically shows us when there is overwhelming panic-buying of stocks by traders rushing to get back into the market.
By contrast, a 90% down-day would show panic-selling like what we’ve seen numerous times over the course of the year.
We’ve now seen two of these 90% up-days, marked by the green arrows in the chart above.
The first was on July 15, and the second came on July 19, with 93% of the volume advancing.
Putting It Together
So, for the week so far, the S&P broke a key technical level to the upside, breaking the pattern of lower lows and lower highs.
Then, we saw a valid follow-through day as well as two 90% up-days on increased volume.
Is this a guarantee that the market will continue to go up from here? Well, no.
But in my opinion, based on all of these technical factors, I think there’s a high probability that the low is in and it’s time to start buying stocks again.
Look to your Watchlist Update on Monday to see how we plan to put this information to work.
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Embrace the surge,
Ross Givens
Editor, Stock Surge Daily
