In Saturday’s newsletter we posed the bullish possibilities for the S&P 500, and we mirrored those thoughts on Monday with the equivalent outlook for the NASDAQ. In neither write-up, however, did we mention a bigger and more ambiguous reason that it could be to be a bull here…. too many new lows.

What? Too many new lows? Yes, it’s a little counterintuitive, but it’s been demonstrated - including very recently - that when the NYSE [or the NASDAQ for that matter] sees a big spike in the number of its stocks hitting new 52-week lows, it’s more often than not a significant bottom.

And how many new lows is the magic number? That’s the ambiguous part - there is no magic number. That determination is made by sight, gut, feel, and opinion.

We’d never argue that the lack of a scientific approach leaves the door open for potential misinterpretations. That’s why this clue is best used in conjunction with other reversal clues.

On the other hand, it’s not hard to see an unusual number of news lows when the data is charted.

Enough talk. More analysis.

In simplest terms, we’re looking for a spike in the number of new lows that indicates a blowout day ….a day that’s so incredibly bearish that it can’t possibly be sustained. Don’t laugh - it works. Take a look at the chart below. For all four of the prior bottoms and bounces (even the ones that were short-lived) there was a clear surge in the number of new NYSE lows. Yes, some were more trade-worthy than others, but each of them did dole out some trade-able bullishness.

The challenges become clear with just a brief study of the chart…. it’s not always clear that the new lows from the NYSE have ’spiked’ until after the fact. For instance, the reversal hint from 6/8 was pretty distinct, but the one from 5/25 was formed only after the (roughly) the same number of new lows was hit for the three prior days.

Still, it’s worth the effort given the risk/reward scenario of such an analysis; it’s timely and telling far more often than not.

Now fast forward to today; despite hovering at new multi-week low levels, we’re not really seeing the same number of new ‘blowout day’ lows that often materializes on a capitulation day. Oh, we saw that number back on 8/25, but we’re not seeing them now.

In other words, the pivot may have actually been back on the 25th when we saw 158 new NYSE lows… a distinctly unusual number at the time. The market just hasn’t yet been able to get any upside traction. However, that may be because making a bottom isn’t always an event - sometimes it’s a process.

In any case, it’s a chart all traders should see (even bearish ones) given the potential upside move that’s brewing. Yes, the last four cases were all only short-term bullish moves, but all big trends start out as small ones.

And here’s a tip to help spot the bottoms flagged by a spike in the number if new lows: look for a reversal bar like a doji or hammer. Almost every single new low spike that pegged a rebound occurred simultaneously with a reversal bar.

You’ll never get this kind of insight or be shown this kind of chart by the mainstream media. Start getting this information - and more - on a regular basis by subscribing to the free Micro Cap Press newsletter.