Will We Know When We’ve Made A Low?
Excerpt: "At some point, this stock market is going to overshoot to the downside, just as it overshot to the upside, and there will be tremendous money to be made. Of course, everyone wants to catch the bottom, so that creates violent rallies when it seems as though we’ve made a low and equally violent reversals when those hopes are dashed.
A look at some recent large market declines–1970, 1974, 1987, and 2002/2003 (charts above)–suggests that market bottoms following major drops tend to be complex affairs. Sometimes, as in 1970 and 1987, you get a washout selloff that marks intraday lows for the bear move, followed by retests that hold above that intraday low. Other times, as in 1974 and 2002/2003, you get the classic pattern of a momentum low (the point at which the number of stocks making fresh annual new lows hits a peak) followed by subsequent price lows on lower momentum (and fewer new lows)."
