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Signs Are Building That A Stock Market Bottom Is In

Mar. 03, 2020 12:32 PM ETDEO, MA, NXPI, QRVO24 Comments


  • Volatility levels spiked to near record levels.
  • Investors may be assuming the worst.
  • Details from companies suggests otherwise.
  • Looking for a helping hand in the market? Members of Reading The Markets get exclusive ideas and guidance to navigate any climate. Get started today »

Just as the crowd was leaving the arena, and we thought the fight was over, the FOMC decided it wasn't. In a rage, the Fed hit the market from behind with a vicious right hook, sending the market to its knees. The Fed screamed at the market "you want a rate cut, take 50 bps, you happy now!" Disgusted, the Fed left the ring. One can only wonder if a third rematch will take place at some point down the road.

Rate Cut

The Fed made a shocking move on Tuesday, announcing it would cut rates by 50 bps. Rate cut or not, the market seemed to already be saying that market bottom may be in.

Vol Hits Historic Levels

Volatility has surged, and signs are emerging that volatility will now begin to fade. The VIX index hit a high of nearly 50 on Feb. 28, which is typically associated with peak fear levels, historical levels this high have been connected with turning points for volatility, and a bottoming process in stock prices.

Options traders are betting that the VIX plunges by the middle of March. We have seen bets in the VIX serve as indications of rising and falling volatility in the past. For example, on Jan. 16, in an article, I noted that there was a tremendous amount of call buying taking place in VIX options, and of course, as we know now, volatility surged, a topic which we recently talked about in my Marketplace service.

VIX Spikes

The VIX spiked on Feb. 28 as the S&P 500 plunged. The VIX hit levels that day not seen since February 2018. We can see that going back to 2007 the VIX has only peaked above 30 on a handful of periods. It also has reached above 50 on even fewer occasions.

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About The Author

I first fell in love with the stock market when I was 16 years. Now, 25 years later and after a long career as a buy-side trader, I share all of my experience with you daily with timely thoughts throughout the day in Reading The Markets. I use fundamental, technical, and options market analysis to identify individual stock ideas for you.

This article was written by

Mott Capital Management profile picture

Mott Capital, aka Michael Kramer, is a former buy-side trader, analyst, and portfolio manager with 30 years of experience tracking market fundamentals. He focuses on long-only macro themes and studies trends and unusual options activities to identify long-term thematic growth opportunities.

He leads the investing group Learn more .

Analyst’s Disclosure: I am/we are long NXPI, MA, DEO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future results.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (24)

Oppps . . . no bottom forming now either three weeks later . . . Really, whether it be blind thrashing by central banks, QE 666 or companies repurchasing stock, part of the 23k+ of hot air in the DJIA and well over 2000 on the S&P 500 has maybe started come out. Presidents Obama and Trump have been virtuoso market manipulators with the help of bankers and media and someone else always gets screwed in the end. Borrowing from the future to pay for political featherbedding as one central banker put it circa 2013. Not a real capitulation and natural bottom in 2009 but prepare to say hello to those and early 1980s levels again . . . 1950s hell ahahahhhaaahahaha!

There are some political people who like to complain about when they say the government, regulators, or others with power are "picking winners and losers" -- well what does 7, 13, 20 per cent down circuit breakers with none on the upside do? Somebody loses when anything gets more expensive.

I give Mr Trump credit for at least saying that he was going to insist on companies not be able to monkey around with their share price with stock buy backs. This kind of thing is what makes people say that capitalism and Communism are the same thing with slightly different people in charge. I wish President Trump would wake up to the comprehensive evil that Saudi Arabia foments, especially now that they have tried to assassinate the US domestic oil industry. Slavophobic racist hacks try to blame Russia for it, of course, but its all hooey as per usual.
if the virus stop spreading then market will reach new highs, otherwise we are in limbo.
AlphaElephant profile picture
I love when companies like $MA and $DEO report temporary bad news. Lower earnings, lower revenue forecasts are all good by me for such solid companies.

Talk about how bad things will be in the next year, so I can get in at lower prices and hold for the next 20.
brianklu profile picture
Could`nt disagree more !
puddnhead profile picture
There's at least one factual error/distortion in this article:
"Several companies that I monitor and observe to this point have only indicated mild implications to their March quarterly results. NXP Semiconductors (NXPI) noted a potential impact on revenue in its first quarter of $50 million, with the potential for up to $150 million"
This is wrong because this $50m isn't "potential" at all; it's what NXP told us they've *already* seen as of this past weekend. Excerpt from their PR:

"... we currently expect the impact to revenue in the first quarter to be in the range of $50 million to $150 million. At the lower end of this range, the $50 million impact is what we’ve actually seen so far, with the weakness most pronounced in the weeks after the Lunar New Year holiday, however, we have now seen more normal order levels in the last two weeks. The $150 million upper range is estimated on a scenario where we would see a return of weakness in the coming weeks, like what we saw right after Lunar New Year."
Mott Capital Management profile picture
it is not a distortion. it is called a typo.
alejrossi profile picture
Mike, i wonder i´ve you´ve read that fed talk induced sharp drops, are one day events. Will this one be another of those? TBD! However, little by little im slowly buying all the securities that were super expensive and i wasn't able to buy. All of them dividend payers, so in case they continue to go down, i can enjoy big fat checks in the meantime :)
Someday perhaps folks will figure out that the market structure is the issue, not the virus, wars, economy, etc, etc. Negative gamma flows know nothing of a virus, or unemployment, or GDP
mexicanhat profile picture
Headline didn't age well....
Corona Virus is not causing death more than flu. The total number of cases is unknown and likely much more than reported. Not enough test kits for findinding covid-19 are available.
All this means is that this kind if fear is unwarranted and the moment it becomes clear within next two weeks(when kits are available) that % of deaths are not high the markets will shoot up.
If fear is unwarranted why did the Fed crap their pants this AM?
@P over A ,
"If fear is unwarranted why did the Fed crap their pants this AM?"

Because market wanted it and it would have fallen even more. Only Therapeutic medicines and vaccines can reduce the fear.

The number of cases is going down in China and even South Korea. This fear is unwarranted. Q1 revenues will be lower by 2% to 3%. This is not end of the world.
Its funny to see COSTCO out of water, this Sunday. People are stocking for an Apocalypse. Americans are more prone to this kind of fear than many of the other countries.
Wildstar profile picture
1st and 2nd quarters earnings are going to be brutal. I'll be waiting with my cash hoard to go Long once the panic sets in.
What levels would make you buy?
S&P500 at 2600.
Do you really think it could drop that low?
Subtle profile picture
Need more data on virus spread in US and economic impact. Until then it is guesswork. One has to wait and see and no panic! Bounces like yesterday may happen again esp with rate cut.
Z-alpha Trading System profile picture
Our two pennies worth. If the VIX prints less than 13, go long. If the VIX prints over 40, go short. The 27-points in between is where the money goes to pass on. As for market bottom recognition, you would be better served to watch the price action and formation patterns of the S&P 500® futures market.

We hope this adds value.
"But, of course, the market can stay irrational for very long periods of time." - I don't think it's irrational to factor in the uncertainty of future earnings especially when that uncertainty is increasing. It's prudent, in fact, to do so. Of course, much of the recent earnings increases have been fueled by companies piling on debt for buybacks.
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