An Eye Toward Bottom Lying Yet Lower Still ~ The Risk Averse Alert

Tuesday, April 14, 2009

An Eye Toward Bottom Lying Yet Lower Still

Since there is nothing altering my near-term outlook anticipating further gains in the market's current counter-trend rally (this preceding another turn down, taking major indexes lower still), how about we consider what reasonable developments might be expected once a viable bottom is in?


All well and good is the fact fewer NYSE-traded stocks registered new 52-week lows in November '08, and then again in March '09 ... this while the NYSE Composite Index ratcheted to new bear market lows. This technical divergence indeed presents positive indication a bottom is in.

But the bottom?

Well, this first awaits expansion in the number of NYSE-traded stocks registering new 52-week highs. Given how far the market has fallen this plainly will either take some time or come as a result of a screaming rally over the next several months.

Now, just because I am no longer anticipating the latter possibility does not mean it cannot happen. However, if a screaming, bottom-confirming rally resulting in an expansion of new 52-week highs were to develop over the next few months, expect it to be accompanied by eye-popping volume rivaling (and likely exceeding) that which registered during the market's decline October '08 through March '09.

Indeed, it was on this front the market's rally this time last year was considered suspect.

So, true bottom — a promising, long-term bullish play — awaits both an expansion in the number of NYSE-traded stocks registering new 52-week highs, as well as a relative expansion in the volume of shares exchanged.

All things considered, then, present circumstances warrant a great deal of caution. My recent turn toward a more bearish analytical posture appears justified by the market's underlying technical condition revealed by the number of NYSE-traded issues registering new 52-week highs, as well as the volume of shares exchanged thus far in the market's rally off March '09 bottom.

Fast Money
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