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Is a Tradable Market Bottom in Sight?


This week may be a good time to review your short list of stocks for a trade or staged position build.

On Friday, I wrote about JPMorgan's (JPM) trading losses and why the news came at a bad time for both the financials and the market in general. Many folks were using the news as a reason to buy… a contrarian signal, per se. And although I was tempted to deploy some of my cash hoard as well, the technical ebb and flow of this downturn was telling me "not yet." So I went home with my lone position in the Gold Miners (GDX) over the weekend.

Here are two technical reasons that played a part in my decision-making:

1. DeMark Analysis.The daily bar charts for both the S&P 500 (cash index: SPX) and the ETF SPDR S&P 500 (SPY) were only on bar 7 of a Demark buy setup on Friday (May 11) - that meant that Monday (May 14) or Tuesday (May 15) would need to record a new LOW if that was to "perfect." That occurred today.

2. 1370 was technically "broken" on the S&P 500. In short, after breaking down below 1370, the index was unable to quickly retake the level on a closing basis. This was a sign of near-term weakness.

So on to the good stuff -- or rather, some less depressing stuff. It appears that a short-term "tradable" bottom may be in, or nearing (i.e. this week). Many stocks are reaching extreme levels and are nearing attractive price points for a bounce higher. And with the S&P 500 recording a new low today and readying to record bar 8 of a 9 DeMark daily buy setup, this week may be a good time to review your short list of stocks for a trade or staged position build.

Furthermore, the upcoming Facebook (FB) IPO may provide some market interest and offer up a catalyst of sorts. Stocks that may benefit from the Facebook IPO and buzz include Fusion-io (FIO), Zynga (ZNGA), and Renren (RENN) to name a few. Another catalyst could be beaten-down commodities; sectors such as energy and precious metals (and related stocks) are reaching short-term extremes and are overdue for a bounce.

Either way, it's another day in the red (so far) so caution is still warranted. Probably a good idea to buy in increments and employ stops.

Trade safe, and happy trading.

S&P 500 – SPX Technical Levels

S&P 500 – SPX With DeMark Setup Counts

SPDR S&P 500 (SPY) with DeMark Setup Counts

Editor's Note: Andrew Nyquist is an independent investor based in the Minneapolis area. This article originally appeared on his investing and economics site, See It Market.

Twitter: @andrewnyquist
Position in GDX.

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