Why does this matter? Because I want to find out how does a ‘bottom’ really look like, at least from a technical analysis viewpoint? Let’s put the macro views aside and concentrate purely on the charts / indicators. Does the current low represent that the market has bottomed?
When was the bottom for GFC 2008?
The bottom was achieved back in the week starting 2nd March 2009 (at least based on the S&P500 index weekly chart).
How does the bottom in GFC2008 look like?
- There was a bullish engulfing candlestick pattern appearing in the week starting 9 Mar 2009;
- Weekly MACD difference was significantly way below the zero threshold. Turns around positive from week 9 Mar 2009 onwards;
- Rising RSI and eventually exceeded the 50-mark in the month of Apr 2009;
- Stochastic: moving away from oversold position;
- ADX achieved peak and declined;
- Price > 20D EMA > 50D EMA (came later in October 2009) – buy signals were triggered; and
- Keltner Channel was flattening from Apr to Jul 2009 and rising thereafter.
Based on the above “bottoming” criteria as evidenced in GFC2008, where are we now (as of 3 April 2020)?
- There was a bullish engulfing pattern for week starting 23 Mar 2020 (due to both stimulus and easing monetary policies announced by both Trump administration / Feds). Nevertheless, there was no follow-through green candlestick, S&P declined in subsequent weeks.
- Weekly MACD had achieved significant low point. As there was no positive reversal, the MACD may continue to decline to achieve even lower point.
- RSI remains below 50-mark, signifying bearish tone for the index.
- Stochastic remains oversold and no positive momentum is seen in this indicator.
- Price is below the MAs. 20D EMA crosses below 50D EMA, a sell-signal has been triggered.
- Rising ADX and has not peaked.
- Widening Keltner Channel and pointing downward.
In a nutshell, I do not think we have reached the bottom yet. Likelihood to see more downside risk. Nevertheless, one should note that the key difference between 2008 and 2020 is that 2008 took close to a year to reach the bottom whilst the rapid correction experienced in 2020 was ferocious and more drastic. Hence, we might see rapid re-bound / mean reversion movements in the near future (of which the indicators may lag behind such movements)
This blog is not an investment advice or endorsement. Please refer to the general discalimer of this blog.