Stock Market Low: 10 Things Investors Need to Watch

Mark Newton
s&p 500 index stock crash analysis demark exhaustion chart_mark newton_march 17

Stock market rallies are still getting sold. The trend is still very negative but nearing initial exhaustion (see S&P 500 Index chart above).

A bounce is expected by the end of week, but I do not expect this to be the final low.

Over the past week, I have been discussing a number of things investors want to see before having confidence that a stock market low is near.

I have compiled this list of 10 insights and want to emphasize its importance by sharing here.

So, here’s 10 things we need to see to have MORE confidence that lows are near:

1) Signs of VIX failing to hit new highs and starting to lag

2) Number of stocks hitting new lows also starting to lag

3) Breadth improving on the decline, both in A/D and in Volume

4) Demark signals lining up to show exhaustion (3-4 trading days away)

5) Multiple days of extreme TRIN readings >2.

6) Some semblance of a reversal bar (HAMMER-candlesticks) where early weakness gives way to gains and a positive close, with movement to multi-day highs even better

7) Signs of High Yield starting to rally and credit spreads do relatively better

8) Fewer people asking me if the lows are near. Sentiment, while bearish on the retail side, still seems like Dip buying attitudes from institutional investors

9) Grow closer to our cycle time of importance, 3/17-23, and/or 4/1

10) Signs of the downtrend being broken, even from last week (Nowhere close)

How many of the above do we see? Numbers 2 and 3 are present and now number 9 is approaching. But not much else.

In plain English, the following three factors DO look to be important to suggest that at least trading lows are near: First, Volume seems to be drying up on the decline, as per Monday’s SPY volume being lower than either Thursday, or Friday of last week. Additionally, the negative 13/1 breadth in NYSE data was certainly beairsh, but yet not nearly as negative as what was seen last week when this data came in near 30/1. Finally, from an Elliott perspective, this recent decline looks to be nearing the end of wave 3 down of 5.

Important, as wave 4 might carry SPX back up to 2800-2850. Not insignificant from current levels. (However, this also then could give way to a final pullback to minor new lows into end of March before “THE LOW” is at hand for this first move down. We can add a possible fourth, in that Treasury yields have been rallying recently, and these led stocks down in January and February, so this also seems to be different.

The Bottom Line

We have sentiment and oversold conditions on the Bull’s side (important), but we still need to see price respond in a manner that changes the technical structure or additional proof. Given how negative price closed on Monday, Tuesday’s early UP move certainly isn’t too confidence inspiring and looks like something to sell into.

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Author has positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.