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Thursday, August 29, 2013

Preparing For September

This was day 2 of the bounce, which reinforces the support at the S1 pivot point after a near flawless bounce off it. We have one trading day left in the month, and it is safe to say we will end the month somewhere between the P and S1 pivots, but tomorrow is basically irrelevant in the grand scheme of things: Tuesday will be day 4 of the rally attempt, the day in which those of us who follow (or attempt to) O'Neil's discipline, begin to look for a follow through day. That will be the signal to load up on long positions (I have been accumulating some on the way down, but since I don;t know how far down this will ultimately go, I have been cauious, perhaps more cautious than I should be). On the other hand, a weakening biunce, and lack of follow through, will be the signal to load up on short positions. Tomorrow may be a good day to take a day off (as many will be going into the 3 day weekend), but glutton for punishment that I am, I will be here.

Rather than use the pivot points as support and resistance, I have used the most recent highs and lows. What is remarkable is that, either way, the results are nearly the same. The entire month of August appears to be computer driven, with only one day of near panic selling. Whether we are being set up for a hellacious rally in September or a hellacious correction, I have no idea, but I strongly suspect September won't be quiet.

I have been waiting for the apocalyptic crash for several years now, and if you look a the SPX or Dow, it almost looks like we might ger one, but looking at he NDX and Russell 2000, I can;t help but feeling my inner bull. This chart looks pretty bullish to me, and a breakout past last week's high could lead to a pretty good move higher. The Russell is my favorite barometer of market health, and right now, it looks pretty healthy.

The levels have been thrown off a bit, but the percentage of stocks on the NYSE above the 50dma is still a pretty reliable correction predictor, and it did predict this one. Where it has been thrown off is trying to predict if the correction is over; normally, this would keep falling until it goes below 35, and at some point reverse. However, 35 could very well mark the bottom on this one.

The same indicator on the Nasdaq is a little more reliable, since it wasn't twisted up by the collapse of bond funds and dividend stocks. Judging by this, there are two possible conclusions: this correction  is a repeat of the prior on, which was very mild, and is now about to end, or, if this is a more typical correction, we have quite a bit further to go. During a normal correction this will drop below 30, and that could be another month away. A follow through day (or lack of one) will tell us which it is.

Vacation time for the big money boys is almost over. Every September I have been expecting an epic collapse, only to be disappointed with a QE driven rally. Well, maybe this is my year.

I will have the new highs update shortly.

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