The market is trying to find a bottom, but we are not there yet. Liquidity is poor and continues to point to more equity volatility ahead, while tactical indicators are not yet at levels seen at previous bottoms.
Market tops are processes, while market bottoms tend to be points in time. Tops can play out over many months, but bottoms are often sharp and sudden and the ensuing rally can be as aggressive as the initial sell off.
Catching a market bottom can therefore be very profitable if you get the timing right. That is why it pays to watch for signs of capitulation.
The following charts show that while signs of stress are growing, we have not yet had the sort of capitulatory move associated with previous market bottoms.
Investors should brace for more volatility, further equity downside, and for the value-growth rotation to continue. More emphatic signs of capitulation are needed before assuming a tradeable bottom is in.
Simon White is a macro strategist for Bloomberg’s Markets Live blog. The observations he makes are his own and not intended as investment advice. For more markets commentary, see the MLIV blog.