Stock Market Insights: Are we near a low?

BY DR. RICHARD L. BAKER, AIF® Founder & Senior Wealth Advisor at Steadfast Wealth Management

I was terrible at roller skating limbo, but chubby guys aren’t usually contenders in these types of games. It’s a center of gravity thing. I still wonder how they got that low.

The market is low. On May 18 the S&P 500 closed at 3,923.68, or 18.1% below its record in January. This was the biggest one-day drop since March 2020.

Has the market bottomed out? Nobody knows for sure when the market will hit its low, but we wish we could. I’ve said in many speeches over the years that if we’d only known to invest all our cash on March 9, 2009, (the bottom of the financial crisis crash) we’d be filthy rich. Okay, maybe not filthy rich but your account would be up over 430%.

There is no crystal ball but there are some historical signs that may indicate that the market is close to a low.

I see two of those indicators now. The first is investor sentiment, which is when the “average Joe” who doesn’t normally follow the market thinks it’s crashing. I’m seeing desperation selling in the market, and I’m starting to hear from people who normally don’t pay much attention which is a classic sign that the market is near a low. The second indicator I’m seeing is an increase in trading volume. Often at the end of a bear market, the daily trading volume (the number of shares bought or sold) will be at least two times normal. We’re seeing a volume spike. The current S&P 500 index volume is at 2.695 million, up from 1.051 million one year ago according to ycharts.com

An indicator I watch for but haven’t quite seen yet is advancers versus decliners. We’re seeing it but not at the level to suggest the market is at a low. Historically when 90% of the issues on the New York Stock Exchange (NYSE) declined three out of five days in a row, the market is typically at a market low. As of May 18, only 70% of the issues on the NYSE have declined according to the Wall Street Journal. This indicator is close but not there yet.

Another indicator that is close but not there yet is a spike in the VIX index (AKA fear gauge.) Since 1990, it has averaged 37 at market bottoms but is only around 30 according to the Yahoo Finance. It’s up but not enough yet to be an indicator.

This is a midterm election year which can make the market volatile. The good news is 12 months after a midterm year market low, the S&P 500 averages up 32.0% according to LPL Research.

One time, probably on a sugar high, I tried to go to a personal record low in skating limbo. It didn’t end well, and I don’t remember much but my butt and head were sore for a week. I should’ve been content with my low. Hopefully, the market will settle for its current low, too.

Have a blessed week! https://www.steadfastwealth. net/richard-baker 2760 East Sunshine St. Springfield, MO 65804