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Before start to read the article please have a close look at the snapshot of CSE Index for the last 12 month.
Comments from experts appreciated.
How to Detect Bear Market Bottom (V-Bottom) of the Stocks or Index?
No other as more important and profitable than spotting the bottom of the stock/indices in the bear market:
Now that today the market is not good (heading for another recession as of August 2011?). Can you say we just hit the bottom? It is definitely risky to invest in an overall falling stock trend because you cannot profit at all. But once it hit the bottom, if you manage to ride as early as the bottom you are in position for maximum profit. It is because the bull market is always headed for a longer term compared to the bear market.
Examine the trend of S&P 500 in the last 5 years:
If you have noticed sometime between January and April 2009, the trend hits the bottom. And then starts to rebound forming the famous “V-pattern”, this is also called the V-bottom. Guess what? After this V-bottom, signals the official start of the bull trend that last even until now (cannot definitely state that the bull trend is over as of August 2011). Are there any clues to spot the precious V-bottom? This is often the hardest to spot and riskiest way to invest. Why? The market is at the worst state of financial status and everyone is AFRAID to lose money. The financial wisdom of Warren Buffet, “Be fearful when everyone is greedy and be greedy when everyone is fearful” is very true to spotting the bottom of the stocks. The following are the high probability indications that stocks or a trend just hits the bottom (BOTH of these clues SHOULD occur together, not just one of them):
1.) It hits previous/historical v-bottom support data.. How to use this? It is very simple, once there was an ongoing bear market (for example the 2009 bear market). The simplest way to spot the bottom is to examine historical data and look for previous V-bottoms. Take a look at this S&P 500 data starting from year 1992 and beyond:
It means to say that “historically”, S&P bottomed out in year 2002/2003 bear market at around 800. This is repeated again during 2009 bear market and it also hits at 800; although not exactly the same but very similar bottom. So this means to say that if the bear market in August 2011 should continue further, it should hit another bottom at 800 at the worst scenario (repeating the scenario in 2002/2003 and year 2009 bear markets.)
2.) Largest volume of shares traded at the lowest index or stock price.
Examine the similarity between 2002/2003 bear market and 2009 bear market in S&P 500.
The traded volume shares will approximately peak at the V-bottom. Take note that this should coincide with the first clue. If it still does NOT hit the previous V-bottom and the traded volume shares hits a peak. This is NOT yet the true V-bottom. You should wait. When it hits historical V-bottom level and the traded shares is at its largest (see at the enclosed red box); it confirms that this is the V-bottom. Why the traded shares should be at the maximum?Common sense will tell you that others are also watching for the V-bottom to occur. Now that a large/majority of investors acknowledges that the stock/indices just hit the bottom, they start buying and trading stocks. It is why you see a large increase in traded volume shares at this point. This officially ends the bear market and the start of the bull market. Jump on the bandwagon now before it is too late!