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Thursday, December 15, 2011

50% Retracement Bounce

I missed the last half of today's trading, something that I can expect for the next couple of weeks, but it looks like I did not miss much. Early on it had the feel of a short covering bounce, but even that fizzled out. The SPX closed the day just above 1215, which may not be nearly as important as holding 1212, which is the 50% retracement of the prior rally. Volume actually was not bad for a pre-holiday session, but still quite a bit lower than yesterday.  All the momentum indicators are bearish, but the pattern here looks more bullish, that is,, until 1212 goes. 

 The Nasdaq 100 does not bullish at all, significantly under performing today, breaking the 50% retracement, and getting a little heavier relative volume. It did, however, fill the gap left from the prior rally, the bottom of which I have marked with the blue horizontal line . That could be bullish, just like pigs could fly.
The Russell 200 also bounced right off the 50% retracement. The indicators are all bearish here, and it is likely this is just a dead cat bounce, butif not we have a potentially bullish setup here. Not that I would bet on it.
At first glance I thought the percentage of stocks on the Nasdaq above the 50dma was quite bullish, until I realized that it was 30 that it was just above and not 50. If it had broken 50 and reversed within a couple of days I would have called this a pullback in a bull move, but it is now about 4 days under it and at least 3 days from getting back above, if it does get back above. I suppose the fact that it has not broken  30 yet should be reason for optimism, but I would be more optimistic about a sudden reversal if it was below 30.
The NYSE looks about the same, with the relative strength here just abut gone, at least on this indicator. Of all the indicators I have looked at this week, this is the one that looks most bullish, but right now that is not saying much.

So far this looks like a bounce, and a pretty weak one at that. Volume should start shrivelling up here for the next couple of weeks, which may lead to a weak rally, but even the end of year "painting the tape" is not holding the market up. January could be quite a ride.

I will have the new highs update shortly.

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