The market opened sharply lower on Tuesday, but quickly rebounded after the initial woosh down. Many talking heads were looking for signs of panic to signify a market bottom, and I think we saw some of that on Tuesday.
Even in terrible markets like 2001-02, the market would get strong bounces after getting oversold. This year, trying to pick a bottom has been like trying to find a needle in a haystack. So while I do not want to sit here and say today was the bottom, I am seeing more and more signs that we should bottom soon.
On Tuesday, the volatility index (VIX) hit its highest level since October 2002. The 10-day ISE Sentiment Index hit a new record low on Friday. Only 16% of stocks are above their 200-day moving averages. There were more than 1100 new lows on the NYSE on Tuesday. The Fed cut 75 basis points, and may cut more next week.
Since we are not coming off a stock market bubble like 1999, I find it hard to believe that we will experience similar downside. More likely, this will be a run of the mill cyclical bear. As such, I think we have already experienced most of the pain (read: downside) associated with bear cycles.
So my game plan is to let the markets bounce, and use that strength to lighten up on stocks that lag. Then we will likely get some sort of re-test to see if the lows hold.
Apple (AAPL) reported disappointing guidance after the close, which is what it always does. This could weigh on the markets today. Disclosure: The author is long AAPL.
Disclosure: The author is long AAPL.