What we need is to see investors stampede to the exit doors.
 
And while I loathe the expression, we need to see them toss out the baby with the bath water.

We need to see stocks of elite companies that fundamental analysts love being sold along with the junk as the stock market becomes psychological poison.
 
That is not quite what is happening now; this is why I think it is not over yet.
 
Indicators from Investors Intelligence and the American Association of Individual Investors do show rather high levels of bearishness, even enough to suggest to contrarians that the worst is over. But these are surveys of advisors and individuals, respectively, and only tell us what people are thinking.
 
I find it more useful to know what they are doing with their money, and for that there are other indicators to use.
 
For example, the percentage of New York Stock Exchange stocks above their 200-day moving averages is at roughly 15%. That is indeed low but not as low as it was after bear markets in 2002 and 2008, and even after the last major correction in 2011 when it was in single digits.
 
As for new 52-week lows, Monday’s temporary 1,000-point drop on the Dow Jones Industrial Average skewed the data but as of Wednesday afternoon there were only 232 new lows on the NYSE. That is not very much at all.
 
These two indicators tell us whether the majority of stocks are being sold hard. When they reach extreme levels we can surmise that everything that could be sold already has been sold. Supply dries up and any spark can get the market rallying again.
 
We are not there yet.
 
And even a more obscure indicator called the bullish percent index (BPI) is far from an extreme low. This indicator measures the percent of NYSE stocks currently on buy signals based on the point-and-figure charting style. The details are not important here other than to understand that it looks at price patterns to determine if a stock is bullish or bearish. No opinion, just price action.
 
Right now, the BPI tells us that about 30% of NYSE stocks are still on buy signals. That is nowhere close to the low levels at the bottom of the last two bear markets or even the 1998 and 2011 corrections. In other words, there are plenty of stocks still in good shape.
 
With volatility so high and short-term conditions so oversold, nobody can rule out a bounce: One that lasts more than just a few hours unlike the ones we’ve seen this week. There is no shortage of pundits calling stocks bargains for the long haul, which also suggests sentiment is not too terrible, so anything goes in this wild and wooly market.
 
But the long-term chart of the Standard & Poor’s 500 shows no such oversold conditions (see Chart). Any of a number of popular momentum indicators show weakness but not at an extreme. Plus, this index, the benchmark for the domestic market, is about to have its own moving average death cross, about three weeks after the much publicized cross in the Dow.

Chart

Standard & Poor’s 500

Whether this is a true bear market or not, with the seasonally scary months of September and October on the horizon, today’s bargains may become tomorrow’s steals.