The stock market has a way of humbling everyone at one point or another. The last five trading days have seen the DJIA and the S&P 500 fall more than 17%. There have been wild swings and late day market plunges and I do not know any market observer that isn’t white knuckled with anxiety for what could be ahead. Allow us to point out a few positive developments which could signal that a market bottom is near.

First of all, when evaluating the stock market one must consider both the fundamentals underlying individual stocks as well as overall market psychology. We would argue that in the present market emotion—or more precisely— “investor sentiment” is overriding fundamental economic factors virtually across the board. There is a climate of fear, uncertainty and doubt (FUD) which has been generated by the failings of many formerly revered financial firms as well as the unprecedented government intervention in the form or rescue packages, rate cuts, bail outs, etc. Just yesterday a Wall Street Journal survey of economists placed the odds of recession over the next twelve months at 89%, up from 60% last month. (Hey, at least it wasn’t 100%)

So, the market has almost everyone jittery if not in full panic mode. There is one sentiment indicator that we pay particular attention to in our bi-weekly newsletters, which is the percentage of NYSE stocks selling above their 30-week moving average. It probably is not a surprise that out of the broad-based NYSE, only 1.66% of stocks are trading above their 30-week moving average. While that may not be surprising, it is still significant. We have been tracking this indicator since June of 1998 on a weekly closing basis. The previous low for this sentiment indicator was 11.9% in July of 2002, which as you will remember was a great time to get back in the market. Normally, when this metric gets below 25% we see it is a strong bullish indicator, and has never been this low in the last 10-plus years.

Secondly, note that General Electric’s (GE) earnings came in as expected this morning and the company is reaffirming its earnings guidance for the full year. Profits fell by 22%—much of that attributed to GE Capital—GE’s finance arm. But even GE Capital’s news was not nearly as bad as some had feared as it earned $2 billion in the quarter. So, while GE did not blow the doors off, the company did what they were expected to do. GE has endured a very rough go of it lately and its exposure to consumer debt is risky in this environment. However, the company is a hugely diversified company that continues to grow despite a challenging operating environment.