Are We There Yet?

I’m very impatient. Any trip I take, whether across town or around the world I continually try to figure out how to get there faster. Needless to say, I’m ready for the market to finish its dive and start climbing again. It can’t get there fast enough.

The S&P 500 closed out June as the worst ever first half of the year since 1970. Many investors are wondering if we have seen the bear market low yet.

We aren’t seeing the panic selling and fear that usually occur at market lows, but we are finally seeing some extremes in areas that we look to for signals that we’ve reached the bottom. Besides panic selling, here are 4 signals we look for around market lows.

– The Volatility Index (VIX) spiking over 40. It hit 36 once and 34 twice, but hasn’t been crazy yet this year. This indicator doesn’t show we’re at the bottom.

– Another is when both the S&P 500 declines by 1% and the VIX declines by 5% at the same time. This can signal that the last few panic sellers are leaving the market, which almost happened on 6/14/22. This signal is rare, happening just 6 times in the last decade, but it’s one of the most accurate. This signal accurately predicted the 2015, 2016, and 2020, lows to the day. This indicator is a “maybe” in indicating a bottom.

– When the put/call ratio tops 1.2, it shows high fear levels in the options market. It hit 1.2 on June 16th and has stayed above it since. This indicator might show we are near the bottom.

– The fourth signal is when the percentage of S&P 500 stocks above their 200-day moving average fall below 20% and then moves back above 20%. This indicator tends to occur later than the other signals. This happened during the June 24th market rally. This indicator might show we are near the bottom.

There is no perfect formula that says these indicators must happen for the market to bottom out. When they do happen, especially at the same time, it tends to be around the market low and could signal a market rebound. A good sign for stocks is that two of the indicators hit on June 16th and on June 24th. In the past when this happens close together the average return a year later is a positive 19%.

I still have concerns with the Fed’s policy, but I think the market is moving in a way that shows upside potential for investors who are patient during the current market volatility. I don’t know if we have bottomed out, but I do think the long-term outlook is getting brighter.

I’ve probably been pulled over for speeding more than all my high school baseball teammates combined, maybe a lot more. I like to get places quickly. I hope we hit the bottom soon, I’m excited to get to the upside.

Have a blessed week!

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IAA and Fervent Wealth Management are separate entities from LPL Financial.