The major indices topped out sixteen months ago in October of ’07. During the intervening time the economic news has gone from bad to worse and the averages have fallen at an increasing rate. Have they finally hit bottom? It appears to me that yesterday was turn around Tuesday. A look at a couple of charts will yield some perspective.
There have been many people who have called the bottom of this market, myself included, and so far nobody has been correct. On Monday most of the averages hit new closing lows for this bear market. However Monday’s close was only marginally lower than last November’s low of 752 on the S&P 500. Yesterday’s strong rally can be considered a successful test of the November lows if it holds. The first chart, from bigcharts.com, is a seventeen year picture of the S&P 500 with an up trend line drawn off of the ’82 low.
You can see Monday’s close of 747 is close to that line. Very long term trend lines generally offer strong support at least initially. I will be extremely surprised if that line is taken out without a significant rally first.
The second chart is a sixteen month chart of the S&P 500 with four down trend lines.
As you can see, trend lines A, B and C decline at an increasing rate. Line A is the primary down trend line and I suspect will remain so for some time to come. B is an intermediate line and C shows the short term trend. Line D is tossed in as a curiosity, it will be interesting to see if it offers any resistance. When the rate of ascent or descent increases, you are usually approaching an inflection point. The short term trend is still down and remains so until trend line C is violated. Having said that though, what we see here is an increasing rate of decline approaching long term support.
The market internal numbers were very strong Tuesday, 2658 advancing issues on volume of 1,711,000,000 declining issues were 346 on 126,000,000 shares traded. A summary of yesterdays trading is in this Bloomberg article. While the weight of the evidence suggests at least a short term move to the upside, the economy is still flat on its back and weasing. It’s not going to be running wind sprints anytime soon. I suspect we will end up with a saucer shaped bottom to this market, that portends for a lot of sideways activity and base building going foward.
Will this turn out to be the ultimate low close for the Bush depression? I hope so, but we will only know for sure in the fullness of time.