Finding a Bottom

By Jim Farrish | September 05, 2008 | 9:20 AM | 2 Comments

Yesterday I discussed leadership or the lack thereof in this current market environment. Then the market proceeded to ‘prove’ there is a lack of leadership and thus pushed the major indexes towards the July lows. This test is important from my view. If we fail this test the market will start anew to find a bottom. While that is not a bad thing, unless you are invested, it is a painful process for investors psychologically.

I updated the NASDAQ chart I posted to include Thursday’s sell off below. Technically we continue towards the bottom of the consolidation pattern. Yes, we did break below the 50 day moving average and we did it on rising volume. Why am I focusing on the NASDAQ? It was the leadership off the July lows and is an indicator for the short term activity.

All of the things I asked for yesterday failed. We didn’t hold support, small caps fell nearly 3% on the day, retail sales data was not up to par except in the discounters and interest rates continued to decline near 3.6% on the 10 Treasury Bond. This in effect puts us on guard towards the test of the July lows. The S&P 500 is 36 points from testing the low and the Dow is only 150 points. That is not much ground to cover before the test. If we have another day like Thursday we hit these points relatively quickly and that is not a good thing.

What we have is a perfect mess. My view of a mess is a lack of order with pure randomness driving the result. The list of events impacting investors is too long to list. The list of potential impacts on the market up or down is too long to list. Over all my years of investing one thing is certain – when the list of potential issues facing the market gets to this point it become a perfect mess. Therefore, be patient! Let the indexes test the July lows. Let commodities decide where the bottom will be. Let everyone pontificate on what the next move will be. In the current state of randomness they are all likely to be right eventually. Preservation of principle is the key to successful investing. Now is one of those time to preserve principle and patiently wait for the resulting opportunity.

pretty good glad that some is saying sane thing rather than the rhetoric that if you dont buy now you will miss the 5-6% quick up movement. Submitted by aram (not verified) on Fri, 2008/09/05 - 11:59am » reply |

Thanks Jim Looks like we'll Thanks Jim Looks like we'll test the July lows. Submitted by pmaclaverty on Fri, 2008/09/05 - 11:05am » reply |