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Market Low or Market Bottom?

The January 2022 FOMC meeting ended today with policymakers signaling a March rate hike and suggesting the tapering program will end in early March. Powell did not say anything surprising, but the focus to fight inflation and the potential of raising rates at every FOMC meeting in 2022, starting in March, spoked investors.

Stocks were up across the board ahead of Powell’s press conference. However, as the Fed Chair’s tone tilted toward a hawkish stance, his comments whipsawed markets as stocks erased their intraday gains and closed down for the day. It was another disappointing day for investors, especially those hoping for a stock market recovery from Monday’s low.


It should not surprise anyone the hawkish Fed comments led to gains eroding into the end of the day. On a positive note, key stock market indexes did maintain above their 1/24/22 intraday lows. However, the lack of follow-throughs to Monday lows warns of a lack of buyers to support the next uptrend.


What do we need to see, at least on the charts, to convince investors to return to the stock market?


Market low does not necessarily mean a market bottom. Most market bottoms, ex V-type bottoms, are often a process. It takes time and considerable effort to repair the technical damages incurred during the market sell-offs. Also, technical bases are often a prerequisite to a sustainable market bottom. Why? A technical base resets the market back to its equilibrium level, and most importantly, encourages sideline money to return to the marketplace.


The first step to a market bottom is solidifying the market low through a favorable technical basing effort (i.e., higher lows, higher highs, accumulation patterns, etc.).


The second step is confirming that this is the final low. Typically, the market in question needs to convincingly breakout above crucial resistance. The resistance can be a single resistance zone or multiple resistance levels. It all depends on the severity of the market sell-off. More extensive the decline, the more overhead resistances on the way back up.


Typically, key resistance corresponds closely to the pivotal technical breakdown level, a crucial moving average, major trendline, pivotal retracement level, a previous reaction high or low, or a combination of the above.


Enclosed below are key technical levels for popular stock market indexes, including the S&P 500 Index (SPX), the Dow Jones Industrial Average (INDU), and the Nasdaq Composite Index (COMPQ). Let us see if the above markets maintain or undercut their recent lows into the end of the month.


Source: Charts courtesy of StockCharts.com

Source: Charts courtesy of StockCharts.com

Source: Charts courtesy of StockCharts.com

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