FINDING A BOTTOM IN THE MARKETAs I've said any number of times before, the market is ALWAYS a forward looking instrument. For example, almost a year ago (last November) was the market top. And at that point, when everything was glorious, the market quietly started to sell off. Sure enough 6 months later in June, we saw the first major bottom form.
So now, with a second bottoming upon us, we look for the signs that it is time to buy again. As with the top being the best time ever, at the bottom we look for signs of panic and capitulation in the market. Well, we may have just seen what I think is the ultimate sign of capitulation and one of the most perfect signals out there. What is that? RETAIL.
It's uncanny, but the peak of retail buying is at the top of the market, and true to form Retail capitulation also has an uncanny ability to signal the final bottom. According to Goldman, $89 BILLION flowed out of the market from retail, the most since April of 2020 which was they heigth of the pandemic market panic (and also the perfect sign of the bottom at the time).
We'll see what comes, but retail capitulation is an awesome signal of a bottom imho. Retail sells on the mood today, fully negative and very palpable, and the market then buys on "tomorrow", or more accurately, about 6 months out. Now, we may fully be in a recession at that point, but also at that point the Fed will be easing off and the market will love that. it's this forward-looking ability of the market, and the inability of retail to see and think in that way, why the pros make the money and retail often washes out, chronically gettting it wrong.
I get it. To retail, it is completely counter-intuative, because they go on emotion, bringing them to capitulate at the perfect wrong time. It's also where you get sayings from the pros such as "buy when there's blood in the streets". That in and of itself is a comment directed at retail.
We''ll see what comes. Again, I take retail capitulation as an excellent sign that a bottom is being put in. Time will tell if the retail gang got it perfect once again....in all the wrong ways.