Who Else Is Calling Bottom? ~ The Risk Averse Alert

Thursday, October 16, 2008

Who Else Is Calling Bottom?

Way out here on a limb ... the market has bottomed. And I would not write about this unless the limb were sturdy...

NYSE 5-min

Is that a 5th wave failure I see? Could be, says Elliott Wave Guy. And that 5th wave's RSI ... check out the "like from like" consistency in same-waves of differing degree. The story told by RSI's sell-side consistency ... this while the NYSE Composite failed to take out last Friday's low ... is buyers stepped aside while Nervous Nellys offered their shares on the cheap.


Today's reversal higher on volume bigger than Monday's — that was the day the market went on a moonshot — is very encouraging. This suggests buying interest has grown over the market's two-and-a-half day retreat.

However, I noticed the present price-RSI similarity to the period leading into the July 15, 2008 bottom. This might suggest last Friday's low is not yet bottom. One notable difference now, though, is shown by the greater impact Monday's scream higher had on RSI, relative to the prior period. Although subtle, this may be significant.

Yesterday's challenge of last Friday's close coincided with a very notable divergence registered in the NYSE McClellan Oscillator. Ditto NASDAQ. (I mentioned this yesterday, too.)

Today's reversal higher resulted in both oscillators extending their rise above last Friday's trough. This, too, is encouraging.

I'm not sure if tomorrow's trading might send 'er skyward. Holding today's low is key if the view taken here, today, is to remain credible.

Hey, was anyone else wondering if Cramer was getting his material from me?

Fast Money
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sdmikev said...

Question about your latest Twitter comment regarding 5-min RSI showing encouraging sign for a continued market advance. My first impression was that we're hitting some buy-side extremes on pretty low volume with a hint of some price-RSI divergences. Could you explain why this looks promising for a sustained rally? Thanks as always.

TC said...

Generally speaking, a buy-side extreme is seen with RSI readings over 80. A sell-side RSI extreme generally coincides with readings less than 20.

Per what's encouraging with today's 5-min RSI... first, there's the simple fact RSI is holding to the buy-side (i.e. above 50). Likewise, each new advance higher in the given underlying index is being confirmed by 5-min RSI ... and this while remaining more or less in balance, not reaching an extreme.

Per any price-RSI divergence presently occurring, one might compare current [lower buy-side] RSI with the [buy-side] RSI extreme reached late in the day this past Monday (and which extreme extended into the open on Tuesday). Indeed, this RSI divergence is occurring while indexes trade at nearly the same levels, today versus Mon-Tue. This might be reason to suspect, then, the possibility indexes are not about to explode to the upside.

Still, today's RSI performance is encouraging to an outlook supposing yesterday's low (Thursday) might be bottom.

There might be some days of indexes trading in the range bounded by yesterday's low and Tuesday's peak. The buy-side RSI extreme reached Mon-Tue might best be seen supporting this greater likelihood. Thus, in this instance the buy-side RSI extreme registered Mon-Tue, rather than suggesting too much confidence in upside reversal prospects and portending still more steep selling to come, might better be seen as fitting of prospects where the biggest rally in over a year might be near to unfolding.

Still, though, the Mon-Tue RSI extreme demonstrates imbalance. So, the likelihood of sideways trading over the next several days might be elevated.

sdmikev said...

Thanks, Tom! Extremely helpful and informative as always.

Like you, I was looking at the >80 RSIs we got today during the 1:00 hour and comparing them to the Monday close-Tuesday open RSI surge. I doubt that we'll decisively knock out last week's low, but I could easily see retesting it with a bit more vigor (lower than yesterday's intraday low) before things turn decisively upward. The somewhat pervasive "we've seen the bottom" sentiment after yesterday seemed a bit rushed to me. Today looks like decent follow-through, but then so did Monday look that way to Friday. Definitely a frustrating market to read. Patience is most certainly the key at this point until Mr. Market gets some sense of direction. Have a great weekend.