If you’re thinking of doing some bottom fishing in a belief that the bear market might be nearing a bottom or that the recent Santa Claus rally could last into the first half of January, I’d suggest you take a look at some charts, either of individual stocks or of major indexes.
They show how much downward momentum exists in the market right now and how much work lies ahead before the market can reverse that bear market trend.
May I suggest a look at the chart for MGM Resorts International (MGM) if you want to see a really brutally ugly chart.
Since the February 2018 drop in the overall market, the stock has drawn a classic pattern of consistently lower highs and consistently lower lows. From $38.03 on January 29, 2018, the stock has fallen to $23.77 as of noon today, December 28.
What’s especially ugly about this chart is how, recently, the stock has failed repeatedly at attempts to establish a higher high and break the pattern of ever lower highs.
On September 20, the stock failed at $28.53, falling short of the $29.80 local high on August 29 and the July 25 high at $31.52.
Then on November 2 the stock failed again to establish a higher high, hitting $28.17 before falling.
And then on December 3, the stock failed again at $28.02.
What this pattern shows, to me anyway, is that investors and traders are willing to buy the shares when they seem really, really cheap, but they aren’t willing to hold them once they become just cheap.
You don’t build a turnaround on a lack of conviction like this. And unfortunately, it’s all too easy to find charts like this in the current market. Which is exactly what you’d expect in a bear market.
(I’d also point out that the news flow on MGM Resorts hasn’t been uniformly negative during this period with solid numbers from Las Vegas (in some months at least) and good news on the legalization of sports better in states such as New Jersey. The impact of the U.S.-China trade war on gaming revenue from Macao does, of course, hang over the stock.)
