Market Bottom in place?

desktop bell
May 17, 2022 by Matt McCracken

Our capitulation indicator is finally giving us some buys off the lows from last Thursday.  I was surprised that I received so few signals over the past several months but they are finally trickling in.  After six straight weeks of decline, it is about time.  We were sitting on a truckload of cash and it is good to start putting it back to work.  

Over the past decade, since the advent of QE, stock market bottoms have been sharp and quick.  What is often referred to as a "V-bottom recovery".  Time will tell if this one will be similar.  And it's certainly not out of the question that the signals we are getting may be false.  In the early part of March of 2020, I was handed a slew of false signals that resulted in a sizeable hit to our portfolios.  And for this reason, we have our stops in place. 

This market still poses all kinds of risks and we are far from bullish on the long-term prospects for broad-based indexes, but for now, I think the short-term risk/reward opportunity in the stock market is improving to the point that we are increasing our exposure to both traditional and alternative names.      

Edit on 5/18/22

I received an e-mail from Ned Davis research this morning (5/18/22) with the headline "Bottoming Out?".  In the e-mail, their sentiment matches mine that it appears there has been some level of capitulation in the equity markets.  Not bad company to be in.  And while my system is identifying the same type of activity theirs is, I saw some additional evidence this morning that brings the imminent capitulation theory into question.  If the stock market can rally and close above the highs of 5/17/2022, I will likely become more bullish but until then, there may be more downside risk here than upside opportunity.  I feel obligated to share this because this morning I liquidated some of the beta I added the past few days expecting the market to rally.  So for full disclosure, my model portfolios have a little more beta than they did last week but less than when I made this post on 5/17/2022.