Yet Another Save In The "Buying Zone"

I saw some news regarding Europe this morning, and while it undoubtably juiced the market first thing this morning, I decided to ignore it. the situation over there is becoming comical, almost as funny as the daily "so-and-so is getting a bailout" rumor from Charlie Gasparino back in 2008. It sure looked to me like the bulk of the buying was short covering, and the low volume reinforced that thesis, although at this point it doesn't matter. The pattern here is rally into the 50dma, drop back to 1140ish, the rally back up, and that is what traders are responding to right now (I am no longer looking for that trade, too much risk and too little reward now). So, once again we wait and see what becomes of this rally.

 Further reinforcing the short covering thesis is the big underperformance by the Nasdaq, which probably was not nearly as heavily shorted. This, too, looks destined for a retest of the 50dma, but very possibly could rally all the way up to the 200dma, if volume cooperates.

I try to use the price relative on the Dow industrials to gauge the health of the market, but it is going sideways, which is no help here, This also looks like a test of the 50dma is n order, and the 50 is dropping, which means another failure there will establish a lower high. This pattern usually results in a continuation of the primary trend, in this case down, and the move will about equal to the prior move down. That is, if Bulkowski is not full of crap (I have no reason to believe he is).

Also underperforming, but not as much as the Nasdaq, was the Russell 2000. It performed just well enough to keep the price relative line from collapse. Another up day or two will probably accomplish one thing: bringing in another blizzard of short sellers.

The market is setting up for what looks to me to be another drop, but, as usual, it is too early to tell, and even if I knew, when and how much is totally unknowable. On problem we have here, besides the magnitude of the economic and fiscal troubles causing all this, is the fact that we are now in "crash season", and anyone who has even a passing knowledge of the history of the market would be out of their minds to be buying for the long term here. This is now a day trader's market.

I will have the new highs update shortly.