It has been obvious lately that Fear is more powerful than Greed. That is why the down moves happen so quickly and the moves up take time. It is also why it is called going “short,” as profits made from shorting must be harvested quickly before they evaporate. As a result of fear, markets have developed extremely oversold conditions. Some nice profits have been made on the downside, and fear of losing these profits coupled with some positive news of a monoline bailout has resulted in this reflex rally.Â
The charts show all the markings of a bottom, i.e., large volume, huge intraday reversal, and a spiking volatility reading.
The DJI actually shows the strongest likelihood of a sustainable bounce here, as the volume on this reversal is mammoth. I’m not sure why the volume on the Dow is so much greater, relative to the SPY and Nasdaq, but it might be that investors see large caps with international exposure as the best place to hide.
 
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Notice on the [[SPY]] and the COMP that volume did not quite reach levels seen during the August lows. I find this makes the argument for a long-term bottom difficult to defend.
The Nasdaq was the weakest today, relative to the Spy and the Dow. Notice that [[AAPL]], [[RIMM]], and [[GOOG]] underperformed.
My analysis is that the economic environment is not likely to get much better soon, and accordingly, this realization will halt the market’s advance. Once the shorts unwind their positions, and more disappointing news appears on the economic front, I expect more weakness. When and where this will happen exactly is hard to say, but in past corrections of this type, the weakness generally occurs before the indexes regain their 50 day moving averages. Therefore, the honey hole has been positioned below the 50 day average, and also beneath the lower trendline of the triangles. Should the indexes reach these levels, it will put them right at break-even on the year. This psychological barrier, coupled with trendline and moving average resistance will be hard to overcome without a significant change in the economic picture.
Note that AAPL, RIMM, and GOOG all underperformed. I believe we are seeing a changing of leadership. Some serious consideration should be given to getting into names that might be new leadership. I suggest screening for recent breakouts and 52 week highs and closely monitoring whether large cap growth or value leads v.s. small cap growth or value. Do not forget that the markets are in a downtrend. Therefore, if you go long, be prepared to take profits quickly. As most traders do not search for short opportunities in a bull market, consider the folly involved in hunting longs in a bear market, although I can fully admit I am damn tired of looking at short setups.
interesting
waiting for the selection though