For last three months, stock market bottom has been elusive. Many investors and traders tried to find the market bottom, bet millions on it and ultimately lost the money. Traders used to play with the market, now the market is playing with them.

There were many days in the recent past, where the sudden rally looked like the bottom was definitely in place. I compared those days with October 9, 2002 when I discussed with my colleagues. October 9, 2002 was the ultimate bottom before the short bull market began in 2002. However, there is no true bottom this year. Every bottom turned out to be black hole for the traders that dumped the money hoping that they are buying really low.

Bottom picking is always a dangerous game because you are assuming that stock market carnage is over, at least temporarily. Just when you think like that, another bank fails and everything goes back to square zero. Bottom picking might work when we have orderly market and free credit flow. All our analysis tools are based on certain assumptions.

One of the major assumptions is that we have healthy credit market. We have completely unhealthy credit market. Fed reduced the rate to zero; still the banks are putting lot of restrictions for the loans. Another assumption is that good companies (like GE, CSCO, IBM, etc.,) make money and grow their businesses. This assumption is also not true now. Even GE is losing money. On top of all these, fear is everywhere in the market. Every trader is worried about deflation, depression and the coming failure of other banks.

If you truly want to pick the bottom of the market, you should be familiar with technical analysis. If you are not, do not try to pick the bottom. You should look for technical indicators such as VIX, volume and moving average of major market indexes. It’s almost impossible to pick the bottom accurately. In the current situation, it’s better being two days late to the game rather than trying to get in the game one day earlier.