Looking for a Stock Market Bottom? Look to Wall Street

By: Mike_Stathis

Wall Street created this mess and they continue to mislead everyone who bothers to listen. But it will be Wall Street that signals a bottom if you know what to look for. Watch for massive downgrades and/or extreme pessimism. This is how the game is played. Remember how the Internet bubble played out? Wall Street surely won't tell you when to get out of the market. But they will tell you when to get back in if you know how to read their actions.

(originally published on July 30, 2008)

The buying opportunity will be shortly after they've thrown in the towel. After bubbles burst, Wall Street creates so much pessimism that capitulation follows. The big problem is that they design these blowouts in a way such that most investors are stuck holding stocks all the way down so they don't have any cash to buy when the bottom hits.

So when you start to see widespread sell signals or large downward earnings revisions across the board, you should have your hand near the trigger and wait for some signs of bottoming. Until you see this, it's likely that the only bottoms made will be short-term. I cannot predict what the signs of a real bottom will be in advance, but you should be looking for fundamental changes in the economy. Although there are many things to track (inflation, interest rates, the financials, etc.) real estate will be a big indicator. You might look for a decline in median home prices to median wages back down to around 3.5. The problem is that it is very possible that this ratio won't be reached for many years. And a stock market bottom could occur prior to a bottom in the real estate market.

A bottom might take quite a bit of time because Wall Street is only beginning to acknowledge the problems. Over the next few months, I would estimate we'll begin to see numerous downgrades and earnings revisions. In the meantime, it is likely that we will see some sort of substantial rally prior to the next sell off down below the recent low of around 10,732. This could take months or a couple of years. The key thing to remember is this – wait for Wall Street to send out nothing but negativity. Then watch the market respond. A bottom is most likely not far from there.

By Mike Stathis
http://www.apexvc.com

Copyright © 2008. All Rights Reserved. Mike Stathis.

Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.

The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.

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America's Financial Apocalypse: How to Profit from the Next Great Depression . Condensed Ed. Copyright © 2007.
Cashing in on the Real Estate Bubble . Copyright © 2006.
America's Financial Apocalypse: How to Profit from the Next Great Depression . Copyright © 2006.
The Startup Company Bible for Entrepreneurs: The Complete Guide to Building Successful Companies and Raising Venture Capital . Copyright © 2004 and 2005.

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