Could the Biggest Bounce of the Year Soon Begin? ~ The Risk Averse Alert

Wednesday, September 10, 2008

Could the Biggest Bounce of the Year Soon Begin?

Anyone else noticing naysayers coming out of the woodwork, casting aspersions on the message of the market?

Yes, of course, there still is Shemp's "there's always a bull market somewhere" and Vince Farrell calling every new low "the" bottom ... but there also is a rather strong hint of conviction in a growing camp of doubters CNBC apparently has no choice but trot out. It's the sort of thing further bringing me to look at underlying technicals in a light supposing a turn higher might develop sooner rather than later.

So, the broadening of selling noted yesterday might best be considered a demonstration of capitulation within the context of the market's decline since May 19, 2008. Not much longer, then, a bottom should be in place.

NASDAQ weekly

Rather than dissect this or that, more abstract technical condition, just keep an eye on the general area of intermediate support underlying the NASDAQ Composite.

(Okay, I can't resist a technical observation ... improving RSI and diminishing volume suggest NASDAQ's support might likely hold.)

If for some reason the market's decline accelerates unexpectedly, then I have to suppose two things: 1). support will evaporate and NASDAQ will crater (along with the rest of the market), and 2). today's support will become tomorrow's resistance.

But I don't expect this to happen. I simply cannot ignore the seemingly growing chorus of naysayers who suggest our world's fundamental financial sickness presently will lead the stock market lower, and stat. Truth is when the market is poised to rise, it typically is when those normally bullish are expecting the worst.

One last thing...

Did anyone else notice how volume remained relatively elevated today despite the price swing being considerably less pronounced than yesterday or Monday? This could be more evidence of capitulation to the market's decline since May.

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Anonymous said...


you are scaring me....thinking we are close to being done?

I think we break the lows from july and freefall...why is out there to hold the market up?

sept-oct typically bad for mr market and think this year will be no different...honestly would not be surprised by a 750 point down day on the dow in sept or oct.

keep the faith! :)

Pangaea said...

Have to say this is a rather striking change from the previous running commentary...

Not that I don't or wouldn't want to hear it, but I'd rather hear more about why, given previous tone.

In its defense, guests on CNBC have been fairly balanced all along, perhaps shading towards bullish or bearish depending on the microclimate, as we all do. Perhaps each hears more of what they want to, when they want to. Still today I hear many saying buy as well as many being cautious.

TC said...

Don't misunderstand. I still am long-term negative toward the stock market. I believe the trend that's your friend over the next couple years or so is down. My outlook expressed in the left-hand column (dated August 25, 2008) remains intact.

The point of recent days' analysis is only to suggest downside pressure since May appears to be abating. Thus, a push higher a la March - May might be in store.

I don't expect last October's peak to be exceeded. Rather, I only have an eye toward an upside move within the framework of more or less sideways trading that has unfolded since March's bottom.

At present, major indexes find themselves at the lower end of the trading range since March 17th. I simply suspect a move toward the upper end of the range, approaching respective 200-day moving averages, might soon unfold. That's all.

Bear in mind... if last October's peak marked the start of a bear market whose target might carry indexes to the area in which each respectively traded in 1994 (Dow 3600), then [obviously] there is a long, long way lower to go. This being a very early moment in the course of such a prospective decline, then, we can expect, at best, an extended period during which stocks are distributed from strong hands into weak.

A classic distribution seems to be the most reasonable conclusion of what has been happening throughout 2008. This has been particularly evidenced during periods when the market has bounced. I see no reason not to further expect his at present relatively high index price levels, particularly when the technical evidence supports this probability. Indeed, I suspect we could see indexes holding up, relatively speaking (i.e. relative to the bear market's ultimate objective) going well into next year. Subsequently, though, look out below.

I hope this clarifies your understanding of my sense of short-term prospects within the framework of the big picture.

TC said...

One other thing I should add...

The only real change recent days' commentary has had on my short-term outlook is the extent to which indexes might fall at present. Previously, I was of the mind to think all the majors I talk about here (OEX, NYA, and COMP) could fall well below July's low before the next bounce developed. Now, however, I suspect something less decisive might unfold. Of course, I could be wrong.

As for expectations for a bounce ... for further demonstration of resiliency forestalling collapse ... this, I hope you agree, is not new news. It's part and parcel of my recent outlook for both "death by a thousand cuts" during declining periods, and a diminishing-volume, complacency-laden character likely to be demonstrated during advancing periods, such as I have been commenting on since the July 15th bottom.

Let me be clear. My sense of how the market's May - July decline and its subsequent bounce was fitting into the big picture has not at all been conclusive. This simply has been one of those periods when prospects have remained more wide open and mysterious than they had been previously. Even now, too, I am by no means pounding the table on this possibility the market might soon bounce ... and possibly rather decidedly at that. However, I think the case for anticipating this is growing. That's all I can say right now.