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Expecting a Bounce Higher, Then . . . . October 27, 2018

Posted by Tom in Thoughts.
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Oct. 26, 2018 – A very volatile week.  Many “percents” down, then up, then back down again.  This market is very oversold so I’m expecting a bounce higher early next week; likely to around the 7445 area on the NASDAQ Composite Index.  IF it closes above the 7520 level (green dashed line) I may have second thoughts that a V bottom could be in place.  But for now a good Wyckoff-ian would be looking for a Selling Climax; that final whoosh down on high volume.   Not seeing it yet.

Volume has been picking up on down bars but not that big capitulation move yet.  The next level down (of a significant bar) would be around the 6880 level (red dashed).  I had to go way back to late February to find that level.  There has been significant damage done, but I think many are looking to “buy the dips” and are not ready to admit that the character of this market may have changed.  Earnings, especially guidance going forward, has been mixed.  Perhaps this market is mature and the economy is in a slower growth period?  Folks may have to come to grips with this being a real correction.  That being said, we would expect that Selling Climax (where people give up & sell), then a rally, then a base being built before re-accumulation of stocks once again begins.

Here’s what I mean about damage in the market.  The pie charts below show the percentage of stocks in the S&P 1500 Index that are currently in what phase.

Price Strength –

Accumulation / Distribution –There is a lot of red in those pie charts and it will take some time to work that off.  The possibility of a net neutral (or close to it) for the year is a possibility.

Sector Strength (short term)Just to be clear, a strong sector just means that it may not be “as bad as” the market as a whole.  The point is that many of these sectors are defensive and not the high growth types that we’ve seen over the past 3-4 years.

Right now I’m a little net short on market indexes, short International and short Oil.  All of these could change quickly next week as they are in a mature moves right now; expecting things to change.

House Keeping:  I try to get this commentary out during the weekend, but since that time is precious to me (I don’t have to watch the markets), it can vary from Friday to Sunday night.  Always looking for comments & feedback.  Take Care & have a Good Week.        ……….  Tom  ……….

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

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