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Thursday, March 17, 2011

Finally A Bounce

 The market finally got a long awaited bounce, and as expected, it came on low volume. The probability here is we rally into the 50dma, which is now starting to turn down, and most likely fail there for another leg down. Ultimately it looks like we are probably in for a test of the 200dma, but we will be watching for a follow through day starting Monday in the meantime.

Both the Nasdaq 100 and Russell 2000 formed those ugly black candles after big gaps up, a sign of continuing distribution, making a follow through day that much more unlikely. From the volume and the selling after the open, my guess is today's bounce was mostly short sellers taking profits.

the percentage of stocks above the 50dma on the Nasdaq has been teasing us with a possible correction for a couple of months, but never qite pulled the trigger until this week, when it came unglued. We are now below 30%, which is undisputed bearish territory. Howw long we stay here is unknown, but any forays above 30 usually mean the correction is about over, so i will be watching this.

The same indicator on the NYSE made an even bigger collapse this week, and is well into bearish territory. This had been holding up better than the Nasdaq, but not anymore.

Since the Nasdaq 100 is only 100 stocks, you would expect the percentage moves to be mjuch bigger, and this one certainly is. I don't have enough historical data to compare this to other corrections yet, so it may be a while before I know just how bad this collapse is.

The market internals are confirming what we already knew - the market is in a correction. We finally got a decent bounce, but it doea not appear to me that the bulk of the selling is over.

The new highs update might be later than usual tonight.

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