In the past week we discussed how to determine market bottom (or top) conditions either in extensive verbiage, or various pretty charts of the most prominent inflection points in US market history. Whether or not those are relevant to the current centrally-planned regime, where all of a sudden everyone is shocked, SHOCKED, to learn that there is no bond market liquidity (something we kept warning about again and again and again), remains to be seen. Still, some such as JPM, are already rushing to the defense of their clients (i.e., the people to whom JPM’s prop desk may have some selling left to do) by providing a handy backtest of which key technical indicators proved useful in the past when determining market bottoms (if not tops – that one JPM will probably never, ever disclose), and what these are saying at this moment.
So for all those who need convincing that the “bottom is now in”, and are desperate to BTFD because other, greater fools will also BTFD and so on, here it is, straight from Jamie Dimon’s (well, technically Nikolaos Panigirtzoglou’s) mouth:
The recent correction is also raising questions about which indicators have been useful in gauging equity market bottoms. The current equity market correction is the 19th (with 5% or more decline in the S&P500 index) since the current equity bull market started in March 2009. One simple way to assess which indicators have been useful in calling the bottom is shown in Table 2. Table 2 shows the minimum reading of four technical indicators within 2 days before or after each equity market bottom. These four indicators are 1) 14-day- RSI or Relative Strength Index which is a price based technical indicator comparing the magnitude of recent price gains and losses to identify overbought or oversold conditions, 2) 14-day VZO or Volume Zone Oscillator which is a volume based technical indicator. VZO separates up volumes from down volumes, it smoothes these volumes by an Exponential Moving Average for a given period, and then divides by the total volume for the same period. Similar to RSI, VZO’s usefulness is in identifying overbought/oversold volume conditions, 3) the S&P500 skew which is an option based price indicator we regularly use in our Option Skew Monitor in Chart A8 in the Appendix and the 4) call/put turnover ratio for US equities as reported by CBOE which is an option based volume indicator.
The green colour denotes a “successful” indicator, i.e. an indicator which happens to be below its lower threshold within 2 days before or after the market bottom. The lower threshold is defined as two standard deviations below the mean since 2009, for all of the four indicators. The message from Table 2 is that RSI and VZO appear to be the most useful indicators followed by the call/put turnover ratio. All these three indicators are currently pointing to oversold conditions. Last time this happened was in August 2011. One of the characteristics of the August 2011 correction was that the equity market was slow to recover.
What are you doing still reading this? You should be out there BTFD with both hands (and certainly the mini bounce into Friday was telegraphed from a mile away)! And after all, JPM has a lot of selling left into this “oversold” market.
via Zero Hedge http://ift.tt/1ur2fZc Tyler Durden