Market showing signs of bottoming

Portfolio: Beachman’s plan for the next few weeks

No one (not even the experts) knows when the market will turn around, although there are multiple, small signs that we are close.

When markets are overbought or oversold, they stop trading on fundamentals and are more prone to sentiment. Given that we are currently in oversold conditions, investors are more likely to be guided by whether they are fearful or not (or greedy).

Why do I think we might be close to a bottom?

Indexes holding support over the past 5 days - multiple green candles and hammer candles on their daily and weekly charts - buyers are slowly stepping in.

SPX, DJI and Transports are holding their Oct 2021 lows. NDX needs to reclaim its Oct low.

Multiple indicators are at oversold levels - RSI, MACD, McClellan indicators, CCI etc.

Friday’s strength in tech stocks was more widespread - cloud, semis, software etc. many sectors rose in unison.

Median valuations for cloud stocks are about 14% below the previous peaks in Aug 2019. Software stocks valuations are in line with their previous peaks in Sept 2019.

EV/NTM revenue multiples for high growth stocks have been sliced from a high of 42x to 18x.

Forward PE ratios for stocks in both the SP500 and the Nasdaq are at Jan 2020 levels.

45% of SPX stocks above 200 day moving average - there was an 8% reversal last week.

And the final indicator - a long-term-investor friend woke up in a cold sweat on Thu and he is usually a pretty tough nut to crack.

So here is my plan for the next few weeks: