Last month was the worst August for the venerable Dow Jones Industrial Average in more than 16 years. For the S&P 500, it was the worst August since 2001.The volatility since has been almost sickening, but I believe the most intense portion of the selling is behind us.

The AIM sentiment indicator, which I discussed last week, has plunged even further into bearish territory. In fact, it’s dropped so far it’s more bearish now than it was during the 2008 financial crash. 

As I explained then, market sentiment is a classic contrarian indicator that can help spot changes in financial trends. When too many people are thinking one way, the market is primed to move in the opposite direction. From a sentiment perspective, this market downturn is a giant vise squeezing out all the bears.

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When it’s over, I expect the ensuing bottom to provide solid profit opportunities in stocks with high Alpha Scores (more on this later). And from what I’m seeing, those outperforming stocks are likely to be based in the United States.

Relative to the rest of the world, U.S. stocks are doing the “least poorly.” You can see this clearly in the Relative Rotation Graph (RRG) below. If you’re not familiar with this powerful tool, I explain it in greater detail here. Basically, a RRG measures the performance of other financial instruments relative to the S&P 500 (located in the chart’s center). 

The three instruments below — representing European markets, Asian markets and emerging markets — rotate clockwise around the center based on how much they are leading or lagging the S&P 500 and whether that leadership or “laggard-ship” is speeding up or slowing down. The “tail” represents where things stood in each of the previous 10 weeks.

When compared to the S&P 500, emerging markets, Europe and Asia are all buried neck deep in the “lagging” quadrant. Essentially, there is nowhere to hide outside the United States — anywhere else you could turn has it worse. 

Since U.S. stocks remain the world leader on a relative basis, let’s drill down into the current technicals and fundamentals for the S&P 500.

Looking at the daily chart, I believe we’re starting to see the beginning of a bottoming process. That meshes nicely with the extreme low we’re seeing in the AIM sentiment indicator, which almost always precedes a market upturn or at least the start of a bottom.

Now, take a look at the two most recent market bottoms that occurred in the S&P 500, one in mid-2010 and the other in late 2011. As you can see, each of these bottoms involved multiple tests of a support area before bulls righted the ship.

Also, in both cases we saw the VIX spike to 40 or more. I’ve highlighted this level in blue in the lower panel of the chart to make it easier to see. We also saw the VIX surge to this heightened level during the major sell-off at the end of August.

Remember, spikes in the VIX show extreme fear and panic selling and correlate very well to market bottoms. Over the past six years, when the VIX has reached this extremely elevated zone, it has coincided with market bottoming processes.

With bearish sentiment ginned up to decade-high extremes, this is a bullish backdrop for a bottoming formation

My job — the one I believe in wholeheartedly — is to run the Alpha Trader system. To that end, I am always looking for the next potential big winner.

Market declines like this offer real opportunity because corrections act as a “reset” button. They eliminate complacency and build the wall of worry that’s needed for strong and persistent uptrends to emerge. Those trends create big money opportunities.

What I’m looking for in times like this are leading Alpha Score stocks that go down much less than the market, consolidate near their highs, rebound quickly, or just simply make new all-time highs. In a downtrending market, such movement is the essence of relative strength. These are the green shoots of the next stock market leaders.

I don’t have the space here to detail how the Alpha Score works, but it is one of the most accurate indicators in the history of Profitable Trading. It pinpoints stocks ready to make huge moves — moves of 20% in 14 days… 82% in 48 days… 118% in 86 days…266% in 12 months. 

This indicator has signaled buys for popular blue-chip stocks, defensive stocks, large-cap stocks, even stocks that you’ve never heard of.

We’re very protective of it, but I’ve agreed to share how it works with a few more readers. If you’d like to be on that list, follow this link.

This article was originally published on ProfitableTrading.com: The No. 1 Market in the World to Invest in Right Now