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Thursday, October 13, 2011

Is That The Best the Bears Can Do?

"This time is different". Well, there are a few differences between now and the last time we were here. Now we are actually above the 50dma, and did test it from above. Another difference: we are more overbought now than last time. But there are similarities as well: the volume patterns look almost identical. What possessed IBD to call a follow through day yesterday is beyond me, but they must see something, because yesterday was not even close to follow through day material.

One thing they must be looking at is the strong leadership of the Nasdaq. However, it, too, is still hitting resistance. The Nasdaq 100 has managed to get back to it's previous high, but has failed to get through it in two attempts.

 I hate to belabor the point, but the Russell 2000 really should be doing much better than it is now. It was lagging very badly this morning, but did stage and impressive turn around, but not quite impressive enough to get it even up to it's resistance. It did get back above the 50dma.

Whoa, now IBD might be on to something here. I'm sure they look at stuff like this (O'Neil considers them secondary indicators, confirmed or not confirmed by price and volume), but this has been a very reliable indicator in my studies. When the percentage of stocks (in this case on the Nasdaq) gets above 50, that normally confirms a bullish move. I would like to see it stay above for another day or two, but it rose today, whcih shocked me, so I am starting to lean bullish here. I suspect we have another down draft coming, and that will be what tells us where we are headed. 
The same indicator on the NYSE. I have a "fudge factor" of 5% based on historical data, and in this case it does show that the NYSE, not surprisingly, is weaker. What is a surprise is that it is not much weaker. These indicators are showing that the market has been gaining strength since the initial plunge in July-August, and they quickly went through then "transition zone" between 30 and 50 (as they have done numerous times in the past) and are in bullish ground. Ignore these at your peril.

It is possible (but not yet probable) that the bear market that began in May is over. What is most frustrating is that the last move down took the leadership in the market out, and a lot of damage was done. Whether that can repair itself before this rally peters out or if we are better off bottom fishing, I don't know. I am very skeptical right now, but I have to give the market the benefit of the doubt for now.

I will have the new highs update shortly.

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