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The Market Is Really Breaking Down, So Where Is The Bottom

By Chris Rowe June 21, 2022 Facebook Logo Twitter Logo Email Logo LinkedIn Logo

If you’re a short-term trader in this bear market and you’re looking to “buy the dips,” you should know they are very different from “the dips” within a bull market. 

Do not get suckered into “buying the dips.” They’re not dips. The market is in a genuine downtrend.

How Weak Is The Market?

Simply stated, there are two forces controlling prices: The Supply side and the Demand side. 

At the time of this writing, the Supply side is in control of all 41 sub-sectors that the stock market comprises.  

And we can see that by using one of our Sector Prophets Pro premium tools, the US Industry Bell Curve.

(Click on any image to enlarge.)

What’s more, notice how far to the left of the Curve those red boxes are. That means they’re in “oversold” territory on their respective Bullish Percent Index (BPI) charts. 

You’ll be hearing the term “oversold” a lot throughout this bloody market. The old Wall Street adage is “oversold doesn’t mean over.” 

Being in oversold territory is merely a set up before the eventual bullish reversal up ensues.  Think of it like cocking a gun so your bullet loads into the chamber. Now you’re ready to fire.  And the right time to fire is when we see Demand take control of the market. 

 

 

At the COVID crash low, two years ago, I told all True Market Insider followers that Demand had started taking control of the market, and we closed out some bearish positions and took some bullish positions. 

 

Here’s a screenshot of the US Sector Bell Curve that I sent to Sector Focus members. Notice how 10 sectors turned blue by March 19th, 2020, indicating demand had taken control of them.  Just a few days prior, all of them were red.  

 

 

And the green arrow in the chart above shows what the S&P 500 was doing at the time we saw the changes from red to blue.  

I’ll let you know when that happens again.   When it does, that’s probably a good time for short-term and intermediate-term traders to exit their bearish positions.  

Now for the big question:  Should bullish investors step in and buy?

If you’re looking to take bullish positions then just keep in mind that that's a “counter-trend trade.”  A counter-trend trade is considered to be aggressive.  Are you an aggressive trader?

Here's what you need to know if you’re aggressive getting into something:  You’d better stick to your guns, and be aggressive getting out if it starts to look like you’re on the wrong side of the trade and the market looks to go lower. 

If you’re a long-term investor and you want to buy at a low, then personally, I like to see if the low gets confirmed with a second low (after a rally higher). 

But the rally higher might take the S&P 500 up by 20% - 25% and that’s a nice, albeit aggressive, gain for a trader to trade.  

If you’re more conservative, then wait until the New York Stock Exchange Bullish Percent Index (NYSE BPI) reverses back up out of oversold territory to buy, and then be on the lookout for the next move lower again.  

I’ll guide you through it.  Just keep reading True Market Insider. 

Finally, our “granddaddy of all indicators,” the NYSE BPI, just broke below 30% for the first time since the COVID lows of March, 2020.

 

 

I’ve been telling you for months now that we will not see a long-term bottom until the market gets completely washed out. That is, until everyone who has stock left to sell has sold. I even made a YouTube video all about the 3 different types of bottoms we could see once that happens.

We’re not there yet. But by entering overbought territory, the NYSE BPI is saying that we’re closer than we were before. We’re getting there.

Where Is The Bottom

When will we see that long-term bottom? I can’t say, and neither can the TV news or the financial media. What I can say is that our internal breadth indicators will tell us when we’re there, unlike the major averages the media rely on (the Dow Jones, the S&P 500, etc.) that will not.

When the market reverses higher, the first bottom will happen because short sellers must cover their positions (buy back their shorted stock).  Then, we usually see a second bottom, where bullish investors are jumping in because they feel comfortable buying where the first bottom occurred due to short sellers covering. 

I hope this helps. 

Most importantly, keep watching my YouTube videos @ChrisRoweTrader and keep reading what we’re saying here. 

This is one of the very few times in your life when you can make a massive impact on your entire net worth.  My kids (13 and 15 years old) have known for years that when the NYSE BPI first moves into oversold territory and then reverses up, a major bottom has occurred. 

One more thing: Hope you’ll join me for my Facebook Live Question and Answer session on Wednesday, June 22 at 12 noon ET.

Chris Rowe

Founder and CEO, True Market Insiders

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