Bottoms Up?

I received an email this morning re some analyst's view advising investors on the prospects of a market bottom. I may have it ass backwards, but talk of a "bottom" needs to be clarified.

A 4.9% drop (closing price to closing price) from the May 31 close within a sideways market (since the spring for US and the fall of last year for most emerging markets) is hardly the stuff of market corrections (5 to 10% or more).

With Momentum, MACD, and RSI in full retreat, more time is needed for a "bottom" to be formed (first chart).

What would be ideal (for a "bottom") is a non confirmation of Momentum, MACD, and RSI versus price. That could then lead to a good rally but not necessarily a "bottom" (as in something more than one that leads to a tradable rally) as the sideways market we have been experiencing may turn out to be a distributional range and not a consolidation phase. Technical analysis support for this possibility (distribution leads to market top) rests in the deterioration (and non confirmation) in Momentum, MACD, and RSI on a longer term (weekly) basis (second chart).

It must be noted, however, that these momentum indicators (which is what Momentum, MACD, and RSI are) are warning signs only.

The key inflection point is IF the Mega Trend reverses (price, moving averages, and their relationship to each other). That could occur late summer or early fall if the sideways markets resolve to the downside (by price breaking below its moving averages, shorter term moving average crosses longer term one to the downside, and the slope of both moving averages is downward).

These are the signs investors and traders might consider as markets debate if the real economy is experiencing an economic soft patch or something else. In other words, soft patch = consolidation, something else = distribution (followed by bear market).