The charts are showing conditions that are ripe for a bounce, yet the Nasdaq Volatility Index is not showing the extreme levels of fear necessary for what I call a tradeable bottom.
The above chart shows that today’s action has many similarities with other bottoms over the past year. There is a surge in volume, there are bullish divergences in the MACD, and the candle is a doji with a long tale. These are exactly the kind of signals we want to watch for as we look for a bottom.
However, something about today’s action just didn’t feel right. I still sense resignation and complacency. It seems to me that some are resigned that the market will fall farther, while others are adopting a wait-and-see attitude before jumping back in on the long side. That is not the recipe for a bottom.
In fact, the VXN confirms this.
Despite the new lows on the indexes and the insipid negative press concerning the economy and market, the VXN is still a good distance from its previous highs. My gut tells me that there is too much going on in our financial and economic systems for this bottom to form on a whimper. This downtrend needs to end in a Bang! and the VXN says we are not there yet, even though other recent bottoms have formed at these levels.
It is conceivable that we do bottom, with little fanfare. It has happened before. If that happens, I will likely miss some entries on the long side. What I’m looking for is close to 4 billion shares to trade on the Nasdaq, volume explosions on the other indexes, and the VIX and VXN to either make new highs or challenge previous highs. I believe strongly that any bounce that is not preceded by extreme levels of volume, fear, and pessimism is not to be trusted.
I get the feeling we are in for some drama tomorrow with MER.
The fun never stops.
I don’t see what you’re seeing with any bullish MACD divergence on the COMPQ.
Look at the histogram Juice. It is going up, while COMPQ is making new lows. Compare the current MACD to this summers, and you’ll see what I mean.