Sector Investing

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Forming a major bottom is a process. It is not something that happens overnight. Just because there is ample evidence of a tremendous amount of pessimism does not mean the market cannot go lower.

For instance in 2008 bearishness hit a 5 year high of 54.4% during the last week of October. Most stocks did not bottom until March of 2009 when bearishness had fallen by more than 10% to 44%. There was still a cross over of more bears than bulls but it took nearly 5 months for the bottom to form.



I am still watching volume. Why? Because it can help determine when a bottom is actually forming. Major bottoms form under low volume. I'm still looking for a 90% upside day, or two days in a row of 80% upside after the selling pressure dissipates.



We are obviously past the market high. We have a lot of pessimism but volume last month was a capitulation month. It would be hard for me to believe we have already formed a bottom. But after 5 months in a row of going down with the kind of sentiment we have now we could certainly rally again after a retest of the August lows.



RtS