With all of the hand wringing and borderline panic out there, equities may finally be getting into position for a tradeable bottom to develop and hold.  The two obvious questions are when and from what level?  My cycle work points to a time window between October 30 and November 5 as the period most likely for a reversal higher.  The trickier part is from what level buyers will step in.   There are multiple projections for price targets that range anywhere from 950 to 1350.  In a difficult environment such as this, panic selling can lead to serious overshoots on price targets, so I am recommending that unless you are already short, keep your powder dry for a tremendous buying opportunity. 

Those of you who have read my blog before know that I am not a typical long only player who constantly tells you to 'Buy, Buy, Buy!'.   This bear market has once again proven that buy and hold does not work!  Why leave your investments laying wide open to unprecedented market risk?  If any of you think that risk will go away, you are mistaken.  Yes, it will ease once this round of selling is done, but with technology playing such a huge part in today's trading along with Wall Street 'creativity', it is just a matter of time before another bubble is inflated.  There is no reason whatsoever to listen to typical brokers/advisors who pay no mind to market risk and simply try to ring up commissions.  It is this simple: a monkey can make money in a bull market.  It is when the inevitable bear market comes that money managers prove their value.  How has your manager done?

The chart below illustrates my contention that a bottom is near.  As you can see, the Nasdaq Composite has been in a downtrending channel since late 2007.  Channels are very common in strongly trending markets, with the top line providing resistance and the bottom line providing support.  A break outside the channel in the direction of the trend (in this case down) signal that the selling has been overdone.  Following a channel break, price normally makes an attempt to climb back into the channel.  As you can see, heavy selling caused the spike lower on October 10.  Since then, prices have consolidated near the prior low without being able to muster any strength.  That shows that the market is very weak here as it can not generate a remotely sustainable bounce, which means that more selling needs to work its way through the market.  

Also note that the Nasdaq momentum indicator (in the lower pane in blue) is holding well above its spike lower on October 9 while price has actually headed lower.  That is a sign that downside momentum is waning.  This is the same concept that allowed me to nail the mid August top.  I am looking for another round of panic selling, possibly as early as Monday, then for a reversal higher in the October 30 - November 5 time frame.  Once that bottom is established, it will be the best buying opportunity in years.  At that point we will take off our short positions and begin stepping into long side trades for our clients, all the while paying very close attention to risk and overall market exposure. 



One caveat to my prediction - if the government steps in again and meddles causing the market to rally, whether it be with another rate cut or another bailout type program, time cycles and price projections can become distorted due to outside influence.  If the market is allowed to find its own level without outside interference, a bottom looks to be truly near.  If Uncle Sam steps in again, the government is simply prolonging the inevitable washout.