Searching for a Market Bottom

09/23/2008 12:00 am EST

Focus: MARKETS

Mark Leibovit

Chief Market Strategist, VRTrader.com

Mark Leibovit, editor of VRTrader.com, says the market may fall more despite some indications we're approaching the lows.

The decisive break under the July lows in the Standard & Poor's 500 index and Dow Jones Industrial Average accompanied by a sharp increase in volume has encouraged me to flip to a Timer Digest "Sell" signal, even though we're in a cyclical time frame for a low. In fact, coming up the autumnal equinox, which took place Monday, often coincides with "change of direction points" in the market, some minor and some major.

Volume, however, is quite negative and Volume Reversal analysis has generated a new "down signal" projection for the Dow to 9500 and the S&P 500 to 1050. We could very well bounce out of here, perhaps into Friday's quadruple options expiration and even beyond, but with the risk of another 1000 points or more to the downside in the DJ, I would prefer to be defensive.

Step back and take a look at the weekly and monthly charts of the major indexes and it's clear we've entered not only a bear market, but potentially an extended bear market. In this regard, I am looking for significant evidence to the contrary to change this view. As I've discussed, such a bear market could carry us back to the 2003 lows.

What about our Annual Forecast Model's "bullseye" call for a low on or about September 16? We may still be in the time frame for an important cyclical low (washout?), but we have to watch for confirming technical signs of such a bottom. I suspect we're close in time to a tradeable bottom—I emphasize tradeable!

The last three spikes in the VIX (August 2007, January 2008, March 2008) all ended with the VIX over 35 and twice it peaked at 37.5. Now the VIX is at 34.69 and hit a high of 35.76. Could we be at or near the low? Jeremy Siegel, finance professor at University of Pennsylvania, also thinks the stock market is near a bottom. "My indicator shows that bullishness recently dropped just below 50%, hitting an 18-year low. Everyone is bearish, sold out. The indicator is lower than October 2002."

The best time to buy is when everybody else is bearish. We will be watching for a good entry point. We may not buy at the exact bottom, but as famed speculator Jesse Livermore said, "It isn't as important to buy as cheap as possible as it is to buy at the right time."

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