Timing Market Turns

James Altucher uses a tick count, an excellent intraday tool for seeing exactly when things get silly.

Longtime readers might remember Aaron Task discussing the Wyckoff Spring in 2001. That's another technical approach to determine the difference between a retest and a new cascade down.

One favorite indicator of my friend Kevin Lane, chief market strategist for Redwood Technimentals, is the Nasdaq Composite net 52-week highs-lows 50-day moving average. On its chart below, net 52-week highs are below the zero line and have similar readings to March 2003. This certainly qualifies as a short-term oversold condition. Kevin also observes that "as of Wednesday's close, only 22% of issues on the Nasdaq Composite were above their respective 50-day MA." This is a similar reading to Gary's T2108 measure.

An early mentor of mine, Guy Ortmann, technical analyst at Capital Growth Financial, combines candlestick charting with McClellan Oscillators, along with several other oversold indicators. By his measure, we put in a double-hammer bottom Wednesday and last Friday. He says Hammer #2 makes him want to "sit down and strap in," so you could say he's a little bullish lately.

My own methodology involves several other measures. After a long downturn, I like to see a big down-volume day, and Wednesday certainly qualified. One share traded up for every 10 down intraday, which suggests to me that sellers are becoming exhausted.

I like when several other indicators confirm this. A key reversal day happens when the markets trade down very low, only to reverse and close at the day's highs. This is yet another piece of the puzzle, suggesting that sellers are running out of supply or losing conviction.

The Arms Index, or TRIN, is another item I watch. I prefer to see the TRIN's 10-day moving average above 1.5, but an intraday spike to 3.8 was enough to get my attention. When the put/call ratio moves above 0.90, that's another early sign of panic, and it happened earlier last week.

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Barry Ritholtz is chief market strategist for Maxim Group, where his research and market analysis are used by the firm's portfolio managers and clients in the U.S., Europe and Japan. He also publishes The Big Picture, his macro perspectives on the economy and geopolitics, entertainment and technology industries. At the time of publication, Ritholtz had no position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Ritholtz appreciates your feedback and invites you to send it to [e-mail].