A Double Bottom?

Market pundits have been all-too easily calling a double bottom based on the S&P 500’s action the past few days. I’ve read and heard from more than a few practitioners that we successfully tested the January 22nd lows and can now begin to build a new bull market. Things are never so textbook simple.

On the other hand, I’ve heard from an equal amount of folks that the S&P 500 is tracing a familiar path to what happened in the 2001/2002 bear market. They will tell you we are sloppily trading -15 to -20% off the highs, with intermittent rallies, only to have subsequent drawdowns and new lows. They will point back to the similar choppy action earlier in this decade’s bear market.

Either way, does it necessarily matter exactly where we are at the present time? The best course of action is to spot the opportunities, avoid the calamities, maintain a prescription of core and counter strategies (always knowing you could be wrong), and seeking to capitalize on emerging trends that come along now and then. There is nothing in financial theory that says double bottoms occur every time, or past bear markets tend to repeat themselves in similar fashion over and over again.

Frankly, the old axiom is probably the best one to emulate — “The market can remain irrational longer than you can remain solvent.” Both bulls and bears have had difficult days of late, so be careful out there!