Bloomberg News

Stocks Show Signs of Bottoming, Bartels Says: Technical Analysis

October 06, 2011

Oct. 6 (Bloomberg) -- The Standard & Poor’s 500 Index is showing signs of bottoming as trading slows during declines, according to Mary Ann Bartels of Bank of America Corp.

About 13.1 billion shares changed hands on U.S. exchanges on Oct. 4, when the benchmark for U.S. equities fell as low as 1,074.77, the lowest intraday level since Sept. 1, 2010, according to Bloomberg data. On Aug. 8, when the index set the prior 2011 low, volume surged to 17.9 billion, the data show.

“Lower volume as the market declines points to diminishing selling pressure and is a sign of base-building,” Bartels, ranked third among analysts who study price charts in Institutional Investor’s 2010 survey, wrote in a note to clients yesterday. “There are early signs of the equity market trying to hammer out a bottom.”

Concern that Europe’s debt crisis will drive the global economy into a recession pushed the S&P 500 down 19 percent between April 29 and Oct. 4, posing the biggest challenge to the bull market that began in 2009. The index closed under 1,100 for the first time in more than a year on Oct. 3, falling below the price range that held since August and putting the gauge within 1 percent of a bear market.

The benchmark reversed losses in the final hour of trading on Oct. 4 after a report in the Financial Times quoted Olli Rehn, European commissioner for economic affairs, as saying there is an “increasingly shared view” that the region needs a coordinated approach to halt the sovereign debt crisis.

The reversal, followed by another advance in the S&P 500 yesterday, confirms a Japanese candlestick bottoming pattern and suggests the rally is likely to continue, according to Bartels.

“It generally takes several months to complete a bottoming process,” she said. “This process can involve additional tests and/or undercuts of the 1,100 and 1,075 area lows.”

The S&P 500 rose 1.8 percent to 1,144.03 yesterday.

--Editors: Nick Baker, Stephen Kleege

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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