10 Signs of a Market Bottom
Bottom? Bottom? Where?s the market bottom?
The talking heads on TV have been working overtime speculating on where the worst move down in the stock market in three years will take us.
It all may sound like intelligent prognosticating to you.
As for me, I know they are guessing.
So I shall share with you my ten benchmark indicators that you can closely track to decide for yourself whether stocks are headed for perdition, or are soaring skyward once again.
1) Ten year Treasury bond yields start to rise, and break out above 2.30% (they are now at 2.18%).
2) The US dollar begins to appreciate once again, taking the Euro ETF (FXE) below $125.
3) Inflation expectations start to rise in Europe. Watch the monthly CPI numbers out of France and Italy, which have recently been negative.
4) Fed funds futures start to rise from near zero.
5) The price of crude oil stabilizes. Watch Brent, which will have the sharpest move up once recovery begins.
6) The small cap index, the Russell 2000 (IWM), starts to outperform the S&P 500 (SPY) on the upside. Smaller companies led the retreat on the downside, and should lead a new recovery as traders like me cover shorts (I already have).
7) Cyclical stocks, like airlines (DAL) outperform defensive stocks like soap and shampoo makers (PG) we already captured this with a (DAL) Trade Alert.
8) The junk bond market (HYG) starts to appreciate.
9) The macro data stream delivers a series of positive numbers.
10) People quit talking about the market bottom, and start opining about the next market top.
As you have probably figured out buy now with my flurry of recent Trade Alerts, I am leaning towards the probability that the bottom for stocks is already in. It?s all about oil.
I spent my weekend running numbers on the impact that cheap energy will have on the economy, and they are truly staggering. I list a few points below:
1) If oil stays down in this area, it will deliver a savings of $12,000 per family in gasoline, heating bills (being from California, I have only heard about these) and electricity.
2) The increased spending this will generate will add 1% to US GDP growth next year, as the cost of energy is pervasive through all industries, either directly, or indirectly.
3) This amounts to a $1.1 trillion stimulus package for the US economy, larger than the one we got in 2009. Think of it as a QE 4.
I rest my case.
