back to blog homepage

Double Bottom?

SPX 2 monthsDouble click on the image for a full size view

The graph above is a two month view of the S&P 500 Index.  Look at all of that red!  Visually, when you see all that red, you can picture the losing days in the market pretty vividly.

But, I also see two very positive things:  (1) it looks like there was a successful test of the August low on Tuesday intraday with that candle that looks like a spinning top; and (2) the indicator at the bottom of the page is coming out of an oversold reading and appears to be moving higher.

These are all technical observations, so let me give you a little color so that you can understand the importance of the double bottom:  for a successful test of a low to be considered a double bottom, you want first to have the price move up 5% above the second test.   The low intraday was 1871 on the index, so 5% above that is 1965 on the index.  We closed today at 1923, so we have not passed the test, yet.  However, if we do move above 1965, there will be A LOT of resistance – just look at all of those red candles leading up to the August low.  It will be a tough move higher because those red candles represent lots of selling pressure – there will likely be a number of investors that didn’t get to sell previously that will take advantage of rising prices to sell in a move off these lows.

However if we have seen a successful test, then statistically based upon the market’s history, the average rise off the bottom is 40% with a failure rate of 5%.  That gives you pretty good odds to invest some capital here at these levels even if this turns out not to be the successful test.

So, we are slowly adding to positions and committing more of the cash we raised earlier in the year because the odds are in our favor.

That’s it for now – as other observations come to light I’ll pass them along.

Mark