DeMark Readings Finally Signaling A Potential Bottom

It's been a painful month for investors but the markets could finally be finding a bottom.  The DeMark Weekly indicators have reached 12 and 13s across the board and stocks are as oversold as they have ever been.

The Weekly DeMark Combo on the S&P 500 paints the most compelling picture for a bottom.  It is currently registering both a 9 and a 13.  A 13 buy countdown signal is an extremely rare event on an index because indexes do not typically sustain such straight down moves for long periods of time.  The only other 13 buy countdown signal on an index that I recall was during the 2002 market bottom.  

SPX Weekly 102808

Likewise, the NASDAQ has registered a 9 buy setup on the weekly DeMark Sequential.

NASDAQ Weekly Seq 102808

Given that we finally hit buy signals on the DeMark indicators, I think we're due for a massive snap back rally.  Stocks are as oversold as I have ever seen them.  The number of stocks above their 50 day moving average for both the NASDAQ and the NYSE is almost at zero. 

NASDAQ Stocks Above 50 Day Moving Average 102808  

NYA Stocks Above 50 Day 102808

And the volatility of volatility (a measure of the 20 day standard deviation of the VIX) is off the charts high, but starting to turn down.  That's typically the sign a turnaround is close at hand.

Volatility of Volatility 102808

While none of these signals tell me the bear market is over, the evidence finally points to a rally that should take the indexes up 10% – 20% from current levels. 

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