How We'll Know When the Bottom Comes
By Jeff Clark
October 2, 2008
"You have no new messages."
I stared in utter disbelief at the still red light on my answering machine on Monday afternoon.
"You have to be kidding," I thought to myself. The market had dropped nearly 800 points, and I had no phone calls. I also had no market-related e-mails.
So my only conclusion is Monday was not the bottom for the stock market.
Let me explain...
Back on March 10, the S&P 500 hit a low of 1,272 – down more than 100 points in 30 days. And my answering machine was flooded with phone calls from friends wanting to know what they should do. No kidding. I received over 20 phone calls and over 50 e-mails from people looking for advice on their investments.
I hardly ever receive phone calls at home, and to get 20 in a day is almost unheard of. My friends' panic and my sudden popularity were good indications the market was forming at least a temporary bottom. And I told you as much on March 11. The market rallied about 11% from there before it took another turn lower.
The same thing happened on July 14. The S&P 500 had fallen 200 points in two months, and it looked like stocks were ready to dive off a cliff. I received 14 voice messages and about 40 e-mails. Everyone wanted to know what to do.
I told you on July 15 to expect a short-term rally. And the S&P 500 rocketed nearly 100 points higher in the next 30 days.
But nobody called me last Monday. And nobody e-mailed me either.
Seriously, my answering machine was blank, and the only e-mails I received had to do with lowering my mortgage payments or increasing the size of... well... you know.
The stock market fell 777 points – the biggest point loss ever – and no one was asking for my opinion. So either nobody cares what I think, or the fear in the market (and amongst my friends) isn't high enough to constitute a bottom.
The market probably hit a short-term low on Monday. But based on my friends' reactions, it won't be the final low. So if you didn't buy stocks into Monday's decline, don't worry about it. You'll likely have a chance to buy them cheaper over the next month or two.
Yes, the number of messages on my answering machine is a crude measure of market sentiment. And trading decisions based on this indicator are dubious at best. But it was right in March and it was right in July.
If it's right this time too, then we're looking at lower stock prices over the next month or so.
I'm not going to bet against it. And you shouldn't either.
I'll let you know the next time the red light on my answering machine is blinking and my e-mail is loaded with messages of despair.
That will be a great time to buy stocks.
Best regards and good trading,
Jeff Clark
