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Expecting A Bounce January 8, 2016

Posted by Tom in Thoughts.
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The market was weak, but I doubt that anyone expected just how weak.  Was it just China concerns or did traders want to postpone tax gains from last year into 2016 or just concerns about up coming earnings reports?  Probably all of these.  On the chart below we see that market sentiment / breath has been weak since mid-December and the low holiday volume did not help to identify low demand in late December.

NASDAQ

Many will criticize my Wyckoff labels, and that’s OK with me.  My theory is that labeling Indexes are tricky because they represent such a broad average and meaningful labeling points sometimes get wash out in the averages.  This is true especially around options expiration and low volume holiday trading days.  Most important are the breaks of the reverse trend lines (dashed purple) and support price levels (dashed blue).  Note how the market just gapped right through these levels showing major weakness.

This market is oversold.  I’d expect significant selling on Monday morning unless China & Europe have a good morning before we open.  Just how the market bounces up, how high and on what volume, will tell us if a bottom is in or if it will just roll over.  Volume was high last week, but I doubt if we’ve seen a Selling Climax yet.  4565 is in easy reach.  The question is then what.  (My guess is another leg lower after a bounce.)

Weakness is fairly broad across all sectors.  Only defensive stocks (utilities, defense and consumer “safe havens”) were less venerable.

A-D SectorsI noted that no sectors were in an “A” (strong) Accumulation.  Here’s a break down by major sector (strongest at the top) –

Sector Strength

Previous high flyers like semiconductors got hit along with continued weak Emerging Markets (China being a major component).  You can see the average price drops over the past 5, 10 & 15 days.  Precious Metals score strong but the chart doesn’t look that great, so I’d be careful taking a big position in that sector.   (Note: click on any graphic to enlarge it for easy viewing.)

Be patient, as this market has moved very far and quickly.  Carefully observe how it reacts on any bounce higher.  That should tell us a lot (is major buying coming in?).  Be extra careful with any longs in here; it’s hard to catch a bottom in this nervous environment.

Have a good week.     ……..  Tom  ………

chart by MetaStock; pie and table by http://www.HighGrowthStock.com.  Used with permission.

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