Bottom near, but they never happen on a Friday : Jeffrey Saut.[img class=article-image ZH src=http://ei.marketwatch.com//Multimedia/2015/08/21/Photos/ZH/MW-DS767_fear_2_20150821120310_ZH.jpg?uuid=1f057c94-481e-11e5-87ed-0015c588e0f6]Everett CollectionStock-market investors haven’t been this scared since the financial crisis, and that’s good news for bulls looking for a market bottom, says longtime bull Jeffrey Saut.“Quite frankly, I have not seen this much fear since the spring of 2009,” when markets bottomed in the wake of the financial crisis, said Saut, chief investment strategist at Raymond James, in a note to clients.Fear-induced selling saw the Dow industrials
DJIA, -3.12% plunge by
more than 500 points on Friday, pushing the blue-chip index into correction territory. The S&P 500
SPX, -3.19% and the Nasdaq Composite
COMP, -3.52% also tanked in a broad-based selloff, with the S&P 500 wiping
more than $1 trillion off its market cap during the week.
Read: This selloff is about China and emerging markets, with a dash of Fed.Extremes can be a contrary market indicator, as reflected by
Warren Buffett’s adage about being “fearful when others are greedy and greedy when others are fearful.” Of course, some times investors are scared for good reason and it can take a while before the bottom appears.
See: Dow 5,000? Yes, it could happen [/url].Saut isn’t looking for a much deeper selloff. He argues that market bulls are in capitulation mode, and that a bottom is likely forming.But how scared are investors? Saut says his own trading index is “extremely oversold and there is panic in the air.” CNN’s [url=http://money.cnn.com/data/fear-and-greed/]Fear & Greed Index is at 10, its most extreme “fear reading.” In addition, he notes, that the number of put options, which give the right but not the obligation to sell a stock at a certain price, being bought by traders outnumbers to volume of call options, which give the right but not the obligation to buy at a certain price, by the most since 2012, which is also a contrarian bullish sign.
See: VIX “fear index” sees biggest weekly jump ever.Saut also says the typical “day count” suggests a bottom is near:
|
| Recall that once the markets get into one of these selling stampedes, they tend to last 17—25 sessions, with only 1—3 sessions pauses/rally attempts, before they exhaust themselves on the downside. It just seems to be the rhythm of the thing in that it seems to take that long to get everyone bearish enough to throw in the towel and capitulate. Today would be session 24. So yes, it does feel like capitulation and participants are scared. |
That said, there was never much of a chance the bottom would arrive on Friday, he says.Markets caught in such “selling squalls” rarely bottom on a Friday, he says, “giving investors the weekend to brood about their losses.”That ensures they’ll show up the following Monday in “sell mode,” Saut said, which often leads to “Turning Tuesday.”So leave it up to the calendar to decide if he’s right. At least it has been a good week for
one market timer.
