DrBob TA Update * 1/26
The markets fell sharply after having rallied earlier in the session, a bearish reversal, on lighter volume than on Thursday or Wednesday which were rally days, a slight positive sign. But the stock market needs to follow-through on Wednesday's strong rally day within 2-3 days to signal a new rally trend.
Short-sellers tried to induce panic selling on Friday during the late decline and it will be important to see if they get selling follow-through on Monday. The market volatility continues for now as each day seems to have 300+ point swings.
The McClellan Oscillator gave a major move signal on the Nasdaq on Friday and just barely missed the same for the NYSE, so we can expect a major move within a few days.
With the recent market volatility, I guess we don't need a signal to expect it, but it just confirms the probability.
The Summation Indices are both at extreme low levels as were their 10% indexes, so the spike down on Tuesday and Wednesday might indeed mark a tradeable bottom, but a follow-through rally in the first 1-3 sessions next week is needed to confirm it.
IBD uses the idea that within 4 days after a strong rally day, there needs to be another one to confirm it. That is not a steadfast paradigm but statistically they have found it to be helpful.
Thus, the downtrend has not yet been reversed in the short-intermediate term of 2 wks to 2 mos until confirmation.
If it does get confirmed, then expect a short-intermed term rally, albeit choppy as it was the rally this week.
If it does not get confirmed then a test of the lows earlier this past week will likely get tested.
Usually extremes such as occurred this week to the downside are followed by short-intermed term rallies as occurred in March to April, 2000 and in the Fall of 1997 and 1998.
I do think that the odds favor a new bear market now and that whenever we do get a tradeable bottom and a corrective/retracement rally, it will be a technical rally within a bear market.
Bottoms are not usually marked by spikes but by double bottoms just as they are not usually marked by triple bottoms. The Spx blew out its pivot point at/near 1490 and then broke down below its double bottom at 1379-1400, and that last move portends or indicates a bear market.
It will take a strong and broad and long-lasting rally to change that viewpoint.
Despite Friday's sharp decline, daily stochastics and some other indicators remain improved and until they reverse, the market could work its way up, especially stock/sector leaders.
So we will eventually have a technical rally lasting weeks and it is possible we are now in that process. Next week will need to confirm that to be true or else bears will take control again.
It is likely that extreme volatility will be with us for the year as there are no longer NYSE trading curbs nor the short-selling uptick rule, resulting in sharp down moves from shorters and sharp upmoves from short-covering.
Also, it has been estimated that program trading and professional trading represents 50-70% of all trading now.
Long term capital gains may be hard to attain from now on as gains and losses will be changing on a weekly and monthly basis, not yearly or even quarterly.
regards,
drbob
AI
