Finding Market Bottom

There are several ways to find the market bottom in a Bear Market:

1. Current value minus Margin equals cash value.  This would be a good one if you could still find the margin numbers.  They are hard to find and skewed because of all the derivatives in the market.  It can help.  In the 1980’s this worked pretty well, but has faded in use over the years.

2. Slope of the Market.  You have to have access to good charts to see this.  If you take the last 40 years of the DOW and chart it to today, then eyeball the chart and select the average low slope, that is the long term trend.  It isn’t exact, of course, but it can give you a hint of the downside potential… mainly where the market could stop falling because it finally reaches real cash value (liquidation value) at a normal long-term rate of return.  As of this post date, it looks like the underlying slope is near DOW 8,000 but that does not mean it will get there, just that it could if things get bad enough.

3. Market bottoms are cyclical.  Look at the chart and you can see that every so many years the market has interim and long term resets to return it to the major long-term slope.  You can make many assumptions about this.

4.  Not to flippant but you can just watch until it becomes obvious.  This works of course, and then you can make a better purchase decision when the upside flags are back in place.  This is all guesswork!

5. For those trying to avoid the downturn to a market bottom, look for the market top.  Usually 3 or more standard deviations from a moving average.  This can signal interim and long term tops.

6. My favorite indicator is the Investors Business Daily, which, if you are an avid reader, has done a great job of doing all this work for you!

7. Ask your advisor.  I like this one the least, but if you have one, make him/her work for you!

You may want to read some of my other postings on the economy and markets to help you with some ideas at www.mparnoldpt.wordpress.com

Good Hunting!