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THE MARKET WHISPERER 36 9

The outcome: the stock exchange regulator fumes. Regulators do not like
situations where analysts recommend and the stock exchange is crashing.
In response, regulators issue instructions to lower expectations. The
outcome: if you are hoping for “buy” ratings at the bottom, forget it. To
buy a stock at bottom you need to see that a decisive majority of analysts
reviewing the stock recommends selling. But pay attention: if the removal
of the last remaining “buy” recommendation does not topple the stock price
further, this is a sign that all the weak sellers are now out of the picture,
and the stock price reflects all the negative expectations. From here on, the
only way left is up.

• Rule 4: The volume at the bottom must be large
Before deciding that the bottom has been reached, you need to be sure

that the weak investors are out of the picture. This is called “capitulation.”
A large spike in volume means that there are a large number of sellers, but
remember that for every seller there is a buyer. This means that the stock
is moving through a lot of hands. Weak sellers have gotten rid of the stock,
and new owners have entered. These new owners bought at a low price.
They have more patience and stamina. The greater the volume grows, the
more weak sellers are being replaced by strong buyers. Remember: a stock
traded at its lowest with large volumes is what we want to buy, not sell.

• Rule 5: Bad news has no impact at bottom
When a stock is at its lowest, bad news and even more anticipated bad

news is already embodied in the price. When all the weak sellers have left,
the remaining buyers are not disturbed by bad news. This rule needs to be
integrated with information on the financial state of the company and its
sector. If the company is wiped out, or is in a sector that suffers from a very
poor macro-economic situation, bad news may prevent it from redeeming
debentures, and then control may be turned over to its shareholders.

• Rule 6: Wait a bit longer…
This is the final and most important rule. Have you decided that you

want to buy? Stop! Hold out a bit longer. It might even be worth waiting
for a further drop, proving to you that your assessment of the bottom was
incorrect. One of the most common mistakes relates to our tendency to
identify too many bottoms in too many instances. True, if you observe this
rule, you may discover you’ve missed out on a good trade, but in most cases
you will be happy to discover that the bottom is even further down. Even