People love picking tops and bottoms. I understand where this comes from, some just have the urge to prove they know more, they know better. While this might be a viable strategy, one needs to know where the market is currently and if a low has a chance of becoming the bottom. Are we in a 8-12% consolidation phase, a 20-30% cyclical correction or a 35+% secular bear market?
We’re seeing a good 10% bounce from the Xmas lows and it’s easy to feel stupid if you dumped your stocks then but now watching the market go up without you. It’s also as easy to feel victorious if you didn’t sell then, but what if we get a retest, or worse, what if it’s not over yet? Can you withstand that?
I prepared a chart pack of 16 bottoms that occurred since 1962. They might help you navigate through the cycles and picking the bottoms. One very common characteristic in bear markets is that we often see a multiple double digit counter trend rallies, the same goes for rallies near market bottoms.
I bet you’ve heard the old saying that tops are a process and bottoms an event. The following charts prove that bottoms are a process too, even though sometimes shorter in length! There are no V type bottoms really, a much more common bottom is the one that fakes people in believing it’s not over yet, like a double bottom or a low undercut bottom or a bear trap bottom. Let’s go through them one by one.
First, here is a chart that shows the bottoms I am presenting below. Green bottoms are cyclical corrections in secular bull markets and red bottoms are bottoms in secular bear markets.