Signs of a bottom

Everyone wants to find the bottom of the stock market so they can make huge returns and be looked at as a genius.  But often times the only way you can tell when a bottom is, is after the fact.  There are some signs that you can look at however to determine if the bottom is coming.

1.       No one believes it

One of the best signs of a bottom historically has been when no one believes they are at a bottom.  Everyone hears bad news and has some reason why the markets will keep falling.   But remember the stock market is a forward looking instrument.

Stocks could start trending up 6 months or more before we see any recovery in the actual economy.

2.       Stocks Stop Falling

Of course before stocks can start to go up again the first thing we need is for them to stop falling.  When the markets start stabilizing again that is normally a good sign that the worst is over and we may see stocks start heading up again.

This can take a long time, it isn’t that stocks just start going up all of a sudden, but they normally take some time to cool off first. 

3.       Leaders emerge

Often times a few of the strongest stocks will start trending higher.  When those stocks start heading up it is normally a sign that other stocks will follow their lead, but not always the case.  Of course the stocks that recover the fastest might make higher returns than the market.

I wouldn’t mind getting into them as long as I cut my losses short if I’m wrong.

4.       Reversal Patterns

Normally the bottom of the market is marked by a reversal pattern like the heads and shoulders or the double bottom.  These patterns aren’t always accurate, but they are worth looking at.

Of course there is no way to tell for sure whether we are at a bottom or not, but these are the signs that typically form when the end is near.

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