The indices (DJIA 12504, S&P 1315) finally rallied, remaining within their intermediate term uptrend (11651-16651, 1224-1791). However, they are searching for a lower boundary to their short term trading range (?-13302, ?-1422).
Yesterday had all the feel of a relief rally/short covering; and we could very well witness some follow through before stocks again resume their search for a short term lower boundary. The key levels to watch as price rise are 12548, 1329---which are the upper boundaries of their very short term downtrends.
At the moment, I don’t believe that Friday’s low will prove to be the new lower boundary (12344, 1292). That said, there were a number of our stocks that bounced off easily defined support levels---hinting that there is some outside chance that equities have found a bottom; hence I am not totally ruling them out as new lower boundaries
As a reminder, the other support levels that I am watching (1) their 200 day moving averages [12198, 1277], (2) the neckline of the reverse head and shoulders pattern [12287, 1266] and (3) the old resistance/support level [11741, 1230].
Volume was down; breadth snap back solidly. The VIX plunged and closed right on the upper boundary of its short term trading range. You will remember that in Saturday’s Closing Bell, I moved forward the call for a break above this boundary based primarily on the distance element of our time and distance discipline. Yesterday, the VIX recouped the entire distance; so I am going to hedge a bit and re-open the confirmation period for at least another day.
GLD moved up slightly, remaining above the lower boundary of its intermediate term trading range.
Bottom line: at the moment, I am operating on the thesis that the current decline isn’t over; that the either the aforementioned upper boundaries of the very short term downtrends or the former 12744, 1338 resistance levels will hold; and when that occurs, our Portfolios will lighten up on some technically broken stocks.
If I am wrong and 12344, 1292 prove the bottom, then there are plenty of stocks on our Buy Lists to Add to.
Corrections take time (short):
Trader Mike on yesterday’s pin action (short):
No economic news yesterday. In addition, there was little out of Europe over the weekend. The focus of investor/media attention was the disappointing trading in Facebook after its equally disappointing Friday offering. That it didn’t have any impact on the rest of the Market was somewhat surprising. But I think that only reaffirms that all eyes are on Europe and with no new bad news, there was a sigh of relief.
***over night, Germany said ‘no way, Jose’ to ECB issued bonds and the OECD
said Europe is now in recession.
A vision of the Greek endgame (medium and today’s must read):
Will a eurozone crisis lead to another Lehman moment (medium):
More on potential bank runs (medium):
Bottom line: if investors were buying stocks just because there was no bad news out of Europe, I believe that they will be very unhappy with their purchases. Now perhaps the buying was because all the bad news from Europe was reflected at 12344, 1292. I doubt it; but it can’t be ruled out.
This is one of those times where the technicals guide my action. 12344, 1292 are either the bottom or they are not; we just have to wait for the Market to reveal its wisdom.
The latest from John Hussman (medium):
Tuesday morning humor (3 minute video):
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