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Finally – A Bounce January 22, 2016

Posted by Tom in Thoughts.
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This week we (finally) got the bounce back up that I’ve been expecting.  This market was waaay oversold (went down too far & too fast) so a bounce back is long overdue.  Just how strong this bounce is (price & volume) will give us an idea about the next move.  Looking at the chart below, the last 2 days, especially Friday, were not that strong.  Friday gave us a gap up (on good European news), but the bar was narrow (range) and volume was just average.  Perhaps a short covering rally.  Looks like buyers and sellers equaled out and not much commitment as we headed into the weekend.

NASDAQ

Market sentiment remains Bearish though Money Flow is slowly improving (selling is slowing).  This looks a little like the ‘V’ bottom that we saw last August.  A classic Wyckoff pattern would be a run up toward an Automatic Rally before we test the lows again.  If that test does not go back to the previous lows (or there abouts) then we could see additional strength & buying return.  More likely is a slow base building back & forth for the next 2-3 months.  I’ve drawn a reverse trend line (in red) coming off of the last highs.  That (level) may be where we’re headed to form an upper trading range / base.  There’s been a lot of damage done so a quick snap back to the previous highs is not very likely, at least not soon.  Since the first of the year the S&P 500 has been down 9% (close basis), so a 2 day rally of 2 1/2% is nice, but we’ll need to see follow through.

The pie chart below of stocks in the S&P 15oo index shows just how broad the selling has been.

AD

Less than 10% of the stocks are in Accumulation (buying).  It’s beginning to look like a stock pickers market or maybe just a volatile back & forth swing of prices for a few months.  In the mean time the price and volume action next week will give us an idea if more downward movement is likely.  Without buyers stepping back into this market not much is going to happen.

Have a good week.       …………  Tom  ………….

chart by MetaStock; pie chart by http://www.HighGrowthInvestor.com; used with permission.

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