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5 Signs That May Mark A Stock Market Bottom

By Michael KramerMarket OverviewMay 20, 2022 06:02AM ET
www.investing.com/analysis/5-signs-that-may-mark-a-stock-market-bottom-200624606
5 Signs That May Mark A Stock Market Bottom
By Michael Kramer   |  May 20, 2022 06:02AM ET
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This article was written exclusively for Investing.com

The equity markets are in free fall, and everyone is searching for the bottom or signs that at least the bottom may be near. But to this point, some of those classic indicators have yet to show any signs of a capitulation occurring in markets, at least not yet. This could mean that while stocks are down sharply on the year, the bottom may not be close.

Typically, when investors are just trying to sell anything that isn't nailed down to the floor, indicators like the VIX may spike. But to this point, despite the VIX being elevated, there has been no significant spike higher.

The VIX has been very well contained between 20 and 35 since the beginning of the year. One would want to see the VIX break out of that range and make a higher high even to begin thinking about a market bottoming process.

VIX Daily
VIX Daily

Additionally, the Put-to-Call ratio has been surprisingly low. Typically, when the Put-to-Call ratio has spiked above 1.35, it has been a pretty good indicator of an S&P 500 nearing or at a bottom. Currently, the highest the Put-to-Call ratio has reached has been 1.34. It has been close, but generally, the spike is well above that 1.35 level.

Put-To-Call Ratio
Put-To-Call Ratio

It is also tough to think about a bottom for a broad-based index when economically sensitive averages and indexes are making lower lows, such as the Dow Jones Transportation. It just made a lower low on May 19 and breached some crucial technical support levels in the process.

Even the biotech sector, one of the first groups to start their descent in early 2021, has been steadily dropping and is now trading back to pandemic lows. Typically, when groups like these start trading counter to the broader indexes, it indicates a bottoming process may have begun.

XBI Daily
XBI Daily

Historically, even from a PE ratio standpoint of the S&P 500, the ratio has bottomed at much lower levels, below 15. During the fall of 2018 and March of 2020, the PE ratio bottomed at closer to 14, which would value the S&P 500 currently around 3,200, or 17.8% lower than where it is trading on May 19.

None of this is to say the index has another 17% to fall, but what it does suggests is that the index hasn't had that moment yet, where it seems like everyone is running for the exits either. It's when everyone is running for the exits, and the sectors that have led the way lower have already started to turn higher, a bottoming process has begun.

On top of that, this bottoming process is likely to be very different from the ones of the past decade because the Fed will not be there to support the market. This time, the market will be entirely on its own, making for a more challenging recovery process than what has been seen in the recent past.

5 Signs That May Mark A Stock Market Bottom
 

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5 Signs That May Mark A Stock Market Bottom

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Comments (37)
King Agamemnon
King_Agamemnon May 22, 2022 5:26PM ET
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good article.
Gershom Zvi
Gershom Zvi May 22, 2022 12:55PM ET
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The bottom is based on external factors and who is in the power right now their attitude
matt ozan
matt ozan May 22, 2022 11:50AM ET
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The article is trying to make a point that we are nowhere close to a bottom where the title states otherwise. I think the title should have been “5 Signs that May NOT Mark a Stock Market Bottom”
Zman Trading
ZmanTrading May 22, 2022 11:50AM ET
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Seriously? You don’t get it
Meme Youyou
Meme Youyou May 22, 2022 11:25AM ET
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Exactly how high are you when you wrote this article?
Mohd Izhar Muslim
Mohd Izhar Muslim May 22, 2022 7:54AM ET
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Thank you for sharing the article 👍
Pa Ag
Pa Ag May 21, 2022 12:08PM ET
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Tittle could have been structured better. Good signs to be on the lookout for though. Ukraine is the wildcard on this one.
dev Dev
dev Dev May 21, 2022 5:59AM ET
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hi sir
Jan Rokyta
Jan Rokyta May 20, 2022 3:38PM ET
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the most depressing article, but after 2 years of economics shutdown I see good growth and naturally decreasing inflation without need to tighten too fast.
Minh Vo
Minh Vo May 20, 2022 3:26PM ET
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Market will recover unitl 2030 8 years from now
Jacob Steinschlag
Jacob Steinschlag May 20, 2022 12:49PM ET
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nice article. I believe there needs to be a severe aapl crash (-60% - -80%) for the stock market to finally have rebalanced and be able to reset and bottom.
 
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