Everyone wants to know where the bottom is in the stock market indexes because we dropped a few percent off of all time highs. Right off the bat, I'll say that I have no idea where or when the market will form a bottom. Some of it depends on your time frame, but for this post - let's define a trade-able bottom as being on the daily bar chart time frame that retraces at least 25% of the eventual loss from $SPX 1850.
Again, I have no idea where on when the market will form a bottom, BUT I do know what to look for.
Bottoms can come in all shapes and sizes - especially the stock market variety.
Here's what they usually don't look like:
Here's what that chart looks like to me (a falling knife):
Secondary indicators like big black bars showing up on a heikin-ashi $SPXA50R at oversold lows or $VIX>20 can be very helpful:
But in the end, I always defer to a price chart. Here are some recent examples of what a bottom in the $SPX looks like to me:
Will the eventual bottom look like one of these 3 patterns? Possibly. We could also have a "tweezer type" bottom (which I personally dislike to trade). We could do something completely different and I'd probably miss the bottom in the indexes and just trade individual stocks (which is fine with me). The important part is that I'll be looking for some reversal or exhaustion type pattern which I can trade with defined risk + better than random probability.
One final thought:
Good luck out there next week.
For lots more charts (and less commentary), check out my public chart list on stockcharts.com.
http://stockcharts.com/public/1109955
