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Extreme bearish sentiment can mean a market is ready to bottom.
Fed liquidity is a key market driver.
The Nasdaq 100 Index ETF ((QQQ - Free Report) ) just suffered its first correction (defined as a 10% drawdown from highs) since March and its second of 2026. Below are things to watch for to identify a potential bottom.
Price Action Versus News
“The stock market is never obvious. It is designed to fool most of the people, most of the time.” ~ Jesse Livermore
As the old Wall Street adage goes, “If the stock market were easy, everyone would be rich.” However, Wall Street is rarely what it seems on the surface. Although fundamentals drive markets, they are useless without the context of price action. Stanley Druckenmiller, who managed money for more than 30 years and never suffered a down year, explains this concept the best:
“So, the technical provides a discipline on the fundamental and the fundamental provides a discipline on the technical. We’re constantly following the news. We’re following the fundamentals and also the price action.” ~ Stanley Druckenmiller
What I have discovered throughout my investing career is that stocks and markets tend to top when news seems most bullish and bottom when the news seems the most bearish. Below are two examples from 2026:
Micron Tops on Blowout Earnings Report
In late June, AI leader Micron ((MU - Free Report) ) reported earnings that blew past Wall Street estimates. In fact, Micron management said that it expects to generate more EPS in 2026 than it has in the past decade. Revenue grew an eye-popping 346% YoY to a record $41.46 billion. Additionally, the company secured 16 strategic agreements worth a minimum of $100 billion.
Image Source: Zacks Investment Research
Although MU shares initially jumped, the blowout report marked the for the stock and it is down 34% since.
Image Source: TradingView
Equities Bottom Despite U.S Iran War
An example of a bottom on poor news was the market in late March. At the time, President Trump was threatening to target Iran’s oil hubs, generators, and key infrastructure. After weeks of falling, the Nasdaq 100 QQQ began to rise despite bad news and further escalations. It wasn’t until April 8th that investors would fully understand what the bullish, resilient price action was discounting – a ceasefire announcement between the U.S. and Iran.
Image Source: TradingView
Price Action Versus News Takeaway
Tracking the news or fundamentals in a vacuum is futile. Instead, investors should monitor the price action relative to news. For instance, investors should lean bullish if stocks are resilient in the face of bad news and vice versa. Currently, stocks are falling amid AI and renewed geopolitical concerns. If bad news continues to hit the tape and stocks begin to rally anyway, it may be an early signal to investors that the market is ready to bottom.
Sentiment Washout
Stocks tend to bottom when the crowd reaches peak bearishness. An excellent tool for monitoring the crowd’s sentiment is the AAII Sentiment Survey, which has polled individual investors on their market bias weekly since 1987. When stocks bottomed in late March, bearish sentiment was overwhelming. In fact, the number of bears outweighed the number of bulls for seven consecutive weeks – an extremely rare occurrence.
Image Source: Zacks Investment Research
Currently, the scale is beginning to oscillate back toward extreme bearishness. AAII bears currently hold a majority at 42.3%, while only 29.6% of respondents are bullish.
Image Source: Zacks Investment Research
Observe the Fed Liquidity
“Earnings don’t move the overall market; it’s the Federal Reserve Board…focus on the central banks and focus on the movement of liquidity. It’s liquidity that moves markets.” ~ Stanley Druckemiller
New Federal Reserve Chairman Kevin Warsh has a reputation on Wall Street as a monetary “hawk.” However, despite increased inflation concerns from the Iran War and soaring energy prices, Warsh decided to keep interest rates unchanged on Wednesday, signaling that he may be more dovish than Wall Street analysts initially thought.
Bottom Line
Navigating market pullbacks requires looking beyond alarming headlines and focusing on how the market discounts information. While timing a bottom is never easy, price action, sentiment, and Fed liquidity analysis increase the odds.
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Image: Bigstock
QQQ Correction Survival Guide: Spotting a Bottom
Key Takeaways
The Nasdaq 100 Index ETF ((QQQ - Free Report) ) just suffered its first correction (defined as a 10% drawdown from highs) since March and its second of 2026. Below are things to watch for to identify a potential bottom.
Price Action Versus News
“The stock market is never obvious. It is designed to fool most of the people, most of the time.” ~ Jesse Livermore
As the old Wall Street adage goes, “If the stock market were easy, everyone would be rich.” However, Wall Street is rarely what it seems on the surface. Although fundamentals drive markets, they are useless without the context of price action. Stanley Druckenmiller, who managed money for more than 30 years and never suffered a down year, explains this concept the best:
“So, the technical provides a discipline on the fundamental and the fundamental provides a discipline on the technical. We’re constantly following the news. We’re following the fundamentals and also the price action.” ~ Stanley Druckenmiller
What I have discovered throughout my investing career is that stocks and markets tend to top when news seems most bullish and bottom when the news seems the most bearish. Below are two examples from 2026:
Micron Tops on Blowout Earnings Report
In late June, AI leader Micron ((MU - Free Report) ) reported earnings that blew past Wall Street estimates. In fact, Micron management said that it expects to generate more EPS in 2026 than it has in the past decade. Revenue grew an eye-popping 346% YoY to a record $41.46 billion. Additionally, the company secured 16 strategic agreements worth a minimum of $100 billion.
Image Source: Zacks Investment Research
Although MU shares initially jumped, the blowout report marked the for the stock and it is down 34% since.
Image Source: TradingView
Equities Bottom Despite U.S Iran War
An example of a bottom on poor news was the market in late March. At the time, President Trump was threatening to target Iran’s oil hubs, generators, and key infrastructure. After weeks of falling, the Nasdaq 100 QQQ began to rise despite bad news and further escalations. It wasn’t until April 8th that investors would fully understand what the bullish, resilient price action was discounting – a ceasefire announcement between the U.S. and Iran.
Image Source: TradingView
Price Action Versus News Takeaway
Tracking the news or fundamentals in a vacuum is futile. Instead, investors should monitor the price action relative to news. For instance, investors should lean bullish if stocks are resilient in the face of bad news and vice versa. Currently, stocks are falling amid AI and renewed geopolitical concerns. If bad news continues to hit the tape and stocks begin to rally anyway, it may be an early signal to investors that the market is ready to bottom.
Sentiment Washout
Stocks tend to bottom when the crowd reaches peak bearishness. An excellent tool for monitoring the crowd’s sentiment is the AAII Sentiment Survey, which has polled individual investors on their market bias weekly since 1987. When stocks bottomed in late March, bearish sentiment was overwhelming. In fact, the number of bears outweighed the number of bulls for seven consecutive weeks – an extremely rare occurrence.
Image Source: Zacks Investment Research
Currently, the scale is beginning to oscillate back toward extreme bearishness. AAII bears currently hold a majority at 42.3%, while only 29.6% of respondents are bullish.
Image Source: Zacks Investment Research
Observe the Fed Liquidity
“Earnings don’t move the overall market; it’s the Federal Reserve Board…focus on the central banks and focus on the movement of liquidity. It’s liquidity that moves markets.” ~ Stanley Druckemiller
New Federal Reserve Chairman Kevin Warsh has a reputation on Wall Street as a monetary “hawk.” However, despite increased inflation concerns from the Iran War and soaring energy prices, Warsh decided to keep interest rates unchanged on Wednesday, signaling that he may be more dovish than Wall Street analysts initially thought.
Bottom Line
Navigating market pullbacks requires looking beyond alarming headlines and focusing on how the market discounts information. While timing a bottom is never easy, price action, sentiment, and Fed liquidity analysis increase the odds.