Is a Market Bottom in Place?

After another decline for stocks on Wednesday, major market indices may again be on the verge of retesting their multi-year lows. The year 2008 is looking to be the worst year since the echnology meltdown in 2000. The DOW is down 34% this year. The S&P 500 is below psychological support at 1,000, down 37% this year, while the NASDAQ is off 37%. The Russell 2000 has rallied from below 500, but remains down 32%. We have seen trillions of dollars disappear from pension funds and personal investment accounts, and if you add in the declining home values, it has been nothing but downright nasty. And for those closer to retirement, the picture is gloomy.

 Technically, investor sentiment continues to be extremely bearish and this will hinder the sustainability of any upside move in stocks. Only about 5.24% of all U.S. stocks are above the 200-day moving average as of October 22, down from 6.83% last week, and well below the 22.40% of a month ago. The same goes for the shorter- term moving averages. The readings indicate the extreme bearishness in stocks.

 Yet, while the picture dos not look promising at this time, what everyone wants to know is whether a bottom is in place. We do not know if a bottom is in place, but will get a better sense if markets retest lows. On October 16, the NASDAQ came within 23 points of its low before buying surfaced and drove the index back above 1,600. On October 22, the NASDAQ again broke below 1,600. Based on this market action, we could see another run at support at the multi-year low of 1,542. A break below on strong volume would be bearish and signal more weakness.

 The same goes for the DOW, S&P 500, and Russell 2000. We could see downside moves to the lows within the next few sessions or weeks if the bearish sentiment does not improve.