Spotting The Bottom Part 2

A follow-up to an earlier post on spotting the bottom, here’s a checklist to get the ball rolling on the recovery in the stock markets:

- Extreme pessimism (Jim Cramer can be our mark. As are stock market forums).
- Bottoming US rates
- Bottoming/strengthening Dollar
- Firming US bond prices
- Blow-off* days and weeks: commodities on the upside, stocks on the downside

Not in any particular order though.

* An upside blow-off: current bar’s high is higher than previous bar, but closes down, preferrably lower than previous bar’s high. On the flipside, a downside blow-off: current bar’s low is lower than previous bar, but closes up, preferrably higher than previous bar’s low.

The “lagging indicators” confirm the reversal, but are usually late:

- Trendfollowing signals (i.e. MAs, trendline breaks, support/resistance breaks, MACDs, etc.)
- Topping Inflation Rates
- Rising Payrolls
- Dropping Unemployment
- “A Recovery” finally prints on the media, forums, etc.