2002 Bottom by: Grant C

To help to focus my thinking about a bottoming process, I’ve been reviewing the last major bear market bottom—the 2002-2003 period. This is a chart of the SPY weekly prices, which shows a process that lasted about 12 months. The first market stab down resulted in a recovery rally that bounced to a declining 100 day EPA (red line) , then a swoon to test the bottom (notice the bullish divergence in MACD-H). Prices regrouped for another rally , this time recovering to a declining 200 day EMA on a strong MACD-H, then a final turn that drifts down, forming a higher low on a shallow MACD-H. Then the long-term averages start to turn up, and finally at the end of the year-long basing period, we cross up through the averages and begin a new bull market. As we all know, history doesn’t exactly repeat and we continue to live in a world that compresses time through the magic of the Internet. That said, we still should expect several months of range-bound trading. The “sell strength, buy weakness” pattern of trading will live with us for a while.