Market X-Rays: All the Symptoms of Nearing a Bottom

Editor's note: This was originally published on RealMoney. It is being republished as a bonus for TheStreet.com readers.

From a technical, sentiment and institutional money flow standpoint, there appear to be some important changes occurring in the market. I started pointing these changes out in my column on Oct. 10 when I said:

"Depending on how the market closes today [Oct. 10], I may start to look for some long-side opportunities in the indices I have highlighted. The key will be for a big down opening this morning, and then we close higher at the end of the day. ... If that happens, it may be a good time to start small positions in these areas with protective sell stops directly beneath those lows."

That situation happened that very day, and I began to take positions in the index ETFs. I followed up in my column last Friday, noting that sentiment indicators were hitting historic extremes.

Technically the stock market has all the symptoms of being near a short-term bottom. If so, the next question will be whether it is a major bottom that holds for a number of years, an intermediate-term bottom that holds for six months, or a short-term bottom that holds for a few weeks. The first step is to determine whether a bottom has truly been reached.

Mr. Market that has managed to defy all the usual rules over the past few months, so I am not ruling anything out, but looking at my indicators and historical precedents, the situation is looking brighter than it has for some time.

I'm sure readers are still asking how I can be more optimistic when the news is so terrible. In fact, last week's economic news was the worst that I have ever seen, even topping the pessimistic outlook from September.