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Posted on 10 August 2011 | 9,563 views

Looking for a Market Bottom? Try October 2011

With turbulent trading activity, there is no sight of a bottom to the market in the near-term — volatility and the edginess in the markets does not help in forming the “Market Bottom” right now.

Tuesday August 9, 2011 — investors who a day earlier were wondering, “How low can it go?” are now posing a much different question: “Has the stock market hit bottom?”

The Dow Jones Industrial Average’s 430-point rebound — its 10th-best point jump and biggest since March 23, 2009 — has given investors hope that the market isn’t set for a replay of the 2008 stock swoon.

The massive price reversal after Monday’s 635-point massacre was not totally unexpected, given the intense selling pressure recently. The sharp downdraft in the broad market in the previous three sessions, the worst since the 2008 financial crisis, had created an “oversold” condition and a super-spike in investor pessimism, two conditions that are often present when big bounces occur.

Tuesday’s volatile session was a mirror image of Monday’s near-death experience for the Dow. The Dow skyrocketed 4% to 11,240, undoing much of the damage caused by its sixth-worst point decline ever a day earlier. All “30 Dow Stocks” were up after all 30 were down Monday.

This kind of volatility cannot last for long and will die down, however, no bottom formation will probably been seen until October 2011.

Even though the Fed’s statement suggested the economy would limp along for years, the market shrugged it off because the nearly 20% drop since its April high “had already priced” in the greater odds of another recession, said Pat Adams, portfolio manager at Dunham Loss Averse fund.

Market bottoms do not usually get formed with such a high degree of volatility — markets will have to settle to see the bottom. If the market rallied a few 100 points, there still would be no guarantee that a bottom had been formed. The market at present is unpredictable and can be called a trader’s graveyard.

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