Wall Street's Hunt for Market Bottom Signals

Wall Street is on the prowl for signs that the market has hit its bottom, a crucial moment for investors looking to capitalize on the eventual rebound. The search for these elusive signals is not just about predicting the exact bottom, but rather identifying the moment when the market has already turned the corner. This is where technical indicators and market psychology come into play, providing investors with the tools they need to navigate the tumultuous waters of a market sell-off.

One of the most reliable signals that the market has bottomed is the Lowry 90% Upside Day. This occurs when 90% of the volume on a given day is in stocks that moved higher during the session. Back-to-back 80%+ upside days are equivalent to one 90% upside day. This signal is calculated by taking “up volume” divided by “total volume.” On TradingView, there is a Lowry Upside Days Indicator, and on StockCharts, you can use $NYUPV:$NYTV. This indicator is reliable because it shows a significant shift in market sentiment towards buying, which is a strong sign of a market bottom.

Another key indicator is the William O’Neil Follow-Through Day (FTD). This signal is more important and is considered a key indicator of a market bottom. It occurs following a prolonged market downtrend and is the first up day from an index low. This signal is highly reliable because it marks the start of a rally attempt and indicates that the market is turning higher.

In addition to these primary signals, other indicators can confirm the market bottom. For example, when 50% or more of stocks are above their 50-day moving average, it indicates that a significant portion of the market is in an uptrend, which is a positive sign. Another important indicator is the NYSE Advance Decline Line (ADL) making at least one higher swing low. This shows that the market is making higher lows, which is a bullish sign.

Psychological factors, such as investor panic and sentiment, play a significant role in the identification of a market bottom. During market sell-offs, fear and uncertainty tend to dominate, leading investors to make impulsive decisions based on short-term market movements rather than long-term fundamentals. This emotional response can exacerbate the sell-off, creating a self-fulfilling prophecy where negative news and widespread pessimism drive prices down further.

To mitigate the impact of these emotions on decision-making, investors can employ several strategies. One effective approach is to use technical indicators to measure market sentiment. For example, the CBOE Volatility Index (VIX), also known as the fear index, indicates the expected volatility of the S&P 500 index. High VIX levels can signal heightened worries, potentially a signal of a market bottom. Conversely, a low VIX can suggest market complacency and is seen as a clue that a market may have peaked.

Another strategy is to adopt a contrarian approach, trading in the opposite direction of the prevailing consensus. For example, if everyone is buying a stock, a contrarian would sell it in order to profit from the move upwards. This approach can be particularly effective during periods of heightened market sentiment, where emotions are driving prices away from their fundamental value. By remaining level-headed and not letting emotions cloud their judgment, investors can navigate sell-offs with greater confidence and potentially capitalize on the opportunities they present.



In summary, the search for market bottom signals is a complex process that involves both technical analysis and an understanding of market psychology. By using reliable indicators such as the Lowry 90% Upside Day and the William O’Neil Follow-Through Day, investors can identify when the market has bottomed and start deploying capital for swing trades or longer-term positions. Additionally, by employing strategies to mitigate the impact of emotional decision-making, investors can navigate market sell-offs with greater confidence and potentially capitalize on the opportunities they present.