Spotting a bottom

The relentless selling continues. The good news is markets are close to a decent intermediate term bottom. The easiest way to spot this is to look at the performance of the following indicators: NASDAQ Bullish percents ($BPCOMPQ), NASDAQ Summation Index ($NASI) and NASDAQ stocks over the 50-day MA ($NAA50). These indicators are excellent measures in isolating bottoms in the NASDAQ (and for the market as a whole). They tend to lag a little in tops; these indicators peaked at the start of February (2006) which was an ideal sell for the NASDAQ, NASDAQ 100 and SOX, but was too early for the Dow, S&P and Russell 2000 which peaked last week.

The table below provides the performance of my newsletter picks in the months after a bottom occurred in these indicators. The stocks are drawn from my "Breakout" and "Subscriber [$]" lists. The "% Win" represents the proportion of stocks for that month which closed profitable. The "% gain/trade" is the average return per trade for winners and losers combined.

For comparison, I have listed the current values of these indicators:

$BPCOMPQ: 51.05
$NASI: -309
$NAA50: 728

It is clear we are not yet at a bottom, but by June we could be looking at some nice summer setups for a run in to Fall. I look for a cross of a 5-day EMA once indicators have crossed above or below certain thresholds to signal intermediate term tops or bottoms. A reversal on a weekly chart is another method which works well for the NASDAQ Bullish percents ($BPCOMPQ) and NASDAQ Summation Index ($NASI).

Luckily, once a bottom is in place for these indicators, the conditions necessary to profit from it can last a couple of months. From my own research, Breakout stocks have performed strongest with respect to the other scans I use during this period and I expect this pattern to repeat (see table). All my Breakout stocks are Free.

Not available from before, but which have performed consistently well since its introduction, I will be investigating the performance on my Trade Ideas scan stock picks. I will be interested to see if this can continue to outperform my current stock scan selections.

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