The bottom is in !

Odss are about 80% that a major bottom is in as of 8/10/07 close. The fear mongering by the media has reached epic proportions. Massive fear levels as measured by the VIX. The most important divergence showed up on Friday, for keen observers of the market, when the VIX made new highs, but the SPX failed to take out the 8/6/07 lows. Now my call for a bottom here is not based on sentiment (although it's highly supportive), but based on pure technical analysis.

I have two charts here.





Let's look at the first chart of SPX between 1991 and 2000, which was a major bull market. I am using 1991 as a starting point because that was the beginning of the bull market based on my weekly momentum work. From a price perspective 1987 was the bottom, but from a weekly momentum perspective, 1991 was the bottom. The momentum confirmation for the bull run came only during 1991. There were three instances, during this period, when the weekly CCI on SPX went below -200. Once the CCI hooked back above -200, a bottom was confirmed and the market never took out those lows again, except 1998. A hook back above -200 is a prelimnary confirmation and is reserved for aggressive bottom pickers. A more solid confirmation comes when the weekly CCI hooks above -100. 3 out of 4 times, the -200 hook marked the bottom. That's 75% odds, between 1991 and 2000 !




Now let's look at the second chart. 2000-2003 was a major bear market. There were two instances during this period when the weekly CCI went below -200 and hooked up. In both the cases, after the CCI hooked-up above -200, the hook-up was a fakeout and there were serious price retests. So during the bear phase, the hookups failed with 100% odds.

Now during the 2003-2007 bull market, there have been two instances when the CCI went below -200 and hooked up. 2005 and now in 2007. 2005 hook-up, the market never looked back.

So the bottomline is, during the bullmarkets, looking at about 16 years of price history, this signal has suceeded 4 of 5 times. That's 80% odds of marking a bottom. During the bear phase, it has 100% odds of failure. Given that the weekly 8 EMA is still above the 34 EMA on the weekly charts and we have classic bottoms above bottoms on the weekly charts, it's undeniable that we are in a major bull market. So i am sticking my neck out and calling 8/10/07 as a major bottom. I could be wrong, but that's what my work says. Since it's only 80% odds (and not 100%), have stops in place, just in case....


As for the VST, i have a weak countertrend buy from friday, which i posted on traders-talk.com. It better be a weak buy, coming out of a major panic low.