Awaiting the nadir
The markets have been tanking for some time now, so it’s reasonable to ask:
Challenges to the carmakers
- When will we see the bottom?
- When will prices reach their lowest?
- When will the stock market recover?
Many analysts are warning of a “double bottom” pattern that could be bullish, and could create a lot of anxiety. Indeed, many investors are simply looking for any sign that a double bottom is approaching.
What is a double bottom?
A Double Bottom is a pattern where the price holds a low two times and fails to break down lower during the second attempt, and instead continues higher.
The phenomenon is illustrated by a tangible drop in price, followed by a slight reversal (or bounce) with a second drop occurring soon after – to either the same or similar level as the first before another, significant reversal so that the chart appears to take on the form of the letter “W“.
The Double Bottom reflects very strong levels of support and often indicates a strong change of trend. It is considered a bullish reversal as the price holds a low two times and eventually continues with a higher high.
What does it mean for investors?
A double bottom will lead to an upturn, with some analysts expecting some sort of recovery next year. Much of their postulations continue to rely on the idea of a Federal Reserve volte-face to cutting rates in 2023.
However some also suggest previous data from past recessions indicate much more downside is on the horizon. In both the dot-com bust and the Great Recession, the 200-day moving average was breached, which led to a rapid selloff. With this precursor in sight, investors will be watching price levels more than normal.
The bulls will run again
Every bull market is preceded by a bear market. This relationship is vital to the functioning of the stock market system. So for long-term investors looking at the big picture, there is no cause to panic.
Prices could drop much more but hesitation or fear could mean missing out on a handful of the best opportunities in the market – which usually come just after a trough.
Our take
We could be in an extended period of turmoil. We’ve got soaring inflation, which will need to be dealt with before any recovery is underway. Thus, it may be hunting season for some time yet for long-term investors.
A key factor of the Double Bottom is that it is essentially a contrarian gameplan. Wise investors know that the overall trend is still bearish and are seeking the long return. So, the risk is always that the market will continue moving in its current path – but for how long is the million dollar question.