Important Signs That May Point To The Dips In The Stock Market

Stock markets are in free fall and everyone is looking for a bottom, or at least showing signs that the bottom may be near. But up to this point, these classic indicators have not shown any signs of a capitulation taking place, at least not yet.

The Dips in the Stock Markets. Typically, indicators like the VIX (Volatility Index) can rise as traders try to sell anything that isn't nailed to the floor. But up to this point, despite the rise of VIX, there has been no significant increase. VIX has been very well contained between 20 and 35 since the beginning of the year. If the VIX goes out of this range and reaches a higher level, it should be considered as an important indicator. Additionally, the Put-to-Call ratio has been surprisingly low. Typically, when the Put-to-Call ratio has spiked above 1.35, it has been a pretty good indicator of an S&P 500 nearing or at a bottom. Currently, the highest the Put-to-Call ratio has reached has been 1.34. It has been close, but generally, the spike is well above that 1.35 level. While economically sensitive averages and indices like the DJTA are at lows, it's hard to think of a bottom for a broad-based index. The DJTA slumped considerably on May 19, falling below some key technical support levels in the process. Even the biotech sector, one of the first groups to start 2021 with a decline, is in a steady decline. Typically, when such bands begin to benchmark against broader indices, it indicates that a bottoming may have begun. Looking back, we see the S&P 500's PE ratio bottoming out much lower below 15. In the fall of 2018 and March 2020, the PE ratio approached 14, indicating that the S&P 500 is currently about 17.8% lower than where it was trading on May 19. On top of that, this bottoming process is likely to be very different from the ones of the past decade because the Fed will not be there to support the market. This time, the market will be completely on its own and there will be a more difficult recovery period than seen in the recent past.