Weekend Read: Forecasting the next Stock Market Bottom
I wanted to come up with a Systematic Method to Forecasting the next Stock Market Bottom. Therefore I have included some data points along with my regular SPX Futures analysis.
Average Bear Market Loss is 36%
With the average bear market loss being 36% by just that measure alone that would leave the SP futures at 3077.
Average Bear Market Duration is 289 days
With the quickest bear market being 30 days in 2020 during the panic of the COVID-19 pandemic and the longest being 630 days in the early 1970’s. Honestly data varies from source to source so unless you count the days of each decline it’s not 100% clear. Suffice to say, for purposes of my method I’m going to use 289 days. I choose to use that duration because it matches seasonality. Therefore, with the high of 4808.25 occurring on January 4, 2022. That would place the end of this bear market on Thursday October 20, 2022.
Analytical Forecasts
$VIX
The extreme readings of the VIX both in 2008-09 and again in the beginnings of the COVID-19 pandemic show the level of volatility needed to mark sustainable turns in the market.
Clearly, we have yet to even reach the first red line of shorter-term market declines let alone a full-fledged bear market capitulation. I consider the VIX a supplemental data point and when used in conjunction with other analysis and data points it tells a story that this decline is not done. The VIX will not allow us to predict price. However, if price is in a forecasted bottoming area and the reading has printed north of 50 to as high as 80, this becomes a compelling case.
Investor Sentiment
The AAII investment Sentiment Index for the week 9/23/2022 is now registering the highest it has since the bear market has begun. Sentiment is surely moving in the right direction for a bottom soon, but sentiment is NOT working its way into selling force as referenced in the VIX index. In my opinion, these two conflicting data points tell me more work is left to the bottoming process.
My Primary Count
The above chart clearly shows my target areas for the pathway to reach its conclusion. The only thing I will add to the above chart is there is MAJOR Fibonacci Confluence down at the 3280 level. That’s hard to ignore and could act as a final magnet to draw price to bottom off of very convincingly.
In summary, I will state that there is a very GOOD chance this Bear Market will not conclude till end of October-beginning of November timeframe, in a capitulation low that could reach the 3280 area. The bad news that over 12% lower from where price is now.
Best to all,
Chris
Average Bear Market Loss is 36%
With the average bear market loss being 36% by just that measure alone that would leave the SP futures at 3077.
Average Bear Market Duration is 289 days
With the quickest bear market being 30 days in 2020 during the panic of the COVID-19 pandemic and the longest being 630 days in the early 1970’s. Honestly data varies from source to source so unless you count the days of each decline it’s not 100% clear. Suffice to say, for purposes of my method I’m going to use 289 days. I choose to use that duration because it matches seasonality. Therefore, with the high of 4808.25 occurring on January 4, 2022. That would place the end of this bear market on Thursday October 20, 2022.
Analytical Forecasts
$VIX
The extreme readings of the VIX both in 2008-09 and again in the beginnings of the COVID-19 pandemic show the level of volatility needed to mark sustainable turns in the market.
Clearly, we have yet to even reach the first red line of shorter-term market declines let alone a full-fledged bear market capitulation. I consider the VIX a supplemental data point and when used in conjunction with other analysis and data points it tells a story that this decline is not done. The VIX will not allow us to predict price. However, if price is in a forecasted bottoming area and the reading has printed north of 50 to as high as 80, this becomes a compelling case.
Investor Sentiment
The AAII investment Sentiment Index for the week 9/23/2022 is now registering the highest it has since the bear market has begun. Sentiment is surely moving in the right direction for a bottom soon, but sentiment is NOT working its way into selling force as referenced in the VIX index. In my opinion, these two conflicting data points tell me more work is left to the bottoming process.
My Primary Count
The above chart clearly shows my target areas for the pathway to reach its conclusion. The only thing I will add to the above chart is there is MAJOR Fibonacci Confluence down at the 3280 level. That’s hard to ignore and could act as a final magnet to draw price to bottom off of very convincingly.
In summary, I will state that there is a very GOOD chance this Bear Market will not conclude till end of October-beginning of November timeframe, in a capitulation low that could reach the 3280 area. The bad news that over 12% lower from where price is now.
Best to all,
Chris
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