After another week of weakness in the U.S. major market equity indexes, Friday saw some relief as the indices were able to reverse off intraday lows and push into the positive.
The small cap index Russell 2000 has lead the decline since the mid September highs, off 12.1% as of Friday's low, with the S&P 500 -8.9% and the DJIA -8.7%.
The Transportation average continues to lag all of these indices as it has been in downward to sideways grind since March of this year. Many market pundits shrug off the weakness in the Transports, but I'm not one of them.
Much of trader sentiment that I'm picking up on Twitter is that we're very overdue for a bounce. I'm also hearing that a "tradeable bottom" has been put in, or is very near. So any strength in this holiday shortened trading week will probably reinforce that notion for the bulls.
But what I sense is that most traders "need" a bounce to either lighten up positions where they've been averaging in, or because they feel that seasonality favors the bullish case.
In the chart of the Nasdaq Composite shown below (click to enlarge), it's clear that the downward trading after the presidential election two weeks ago has intensified, as the parallel downward channel slope increased.
Whether that is a result of traders expressing disappointment in Obama's re-election, or that it puts increased odds for continued gridlock in Washington D.C. to deal with the pending fiscal cliff is for you to decide.
What is concerning is the nature of the selling that has occurred recently; it's not a panic type sell off. Instead, the selling has been what has been described as "orderly".
Many, but not all, sell offs that mark tradeable bottoms have a volatile, climactic period where prices trade down violently in a very short period of time. Recent weakness "feels" like nothing more than a persistent offer to sell equities, but no panic.
So while a reflex rally is possible this week, I will be playing with smaller positions in what should be low trading volume after Tuesday. If a defined uptrend emerges with a valid confirmation day, there will be plenty of opportunity to latch on to the next bull phase winners.
Patience is the key, for now.
The small cap index Russell 2000 has lead the decline since the mid September highs, off 12.1% as of Friday's low, with the S&P 500 -8.9% and the DJIA -8.7%.
The Transportation average continues to lag all of these indices as it has been in downward to sideways grind since March of this year. Many market pundits shrug off the weakness in the Transports, but I'm not one of them.
Much of trader sentiment that I'm picking up on Twitter is that we're very overdue for a bounce. I'm also hearing that a "tradeable bottom" has been put in, or is very near. So any strength in this holiday shortened trading week will probably reinforce that notion for the bulls.
But what I sense is that most traders "need" a bounce to either lighten up positions where they've been averaging in, or because they feel that seasonality favors the bullish case.
In the chart of the Nasdaq Composite shown below (click to enlarge), it's clear that the downward trading after the presidential election two weeks ago has intensified, as the parallel downward channel slope increased.
Whether that is a result of traders expressing disappointment in Obama's re-election, or that it puts increased odds for continued gridlock in Washington D.C. to deal with the pending fiscal cliff is for you to decide.
What is concerning is the nature of the selling that has occurred recently; it's not a panic type sell off. Instead, the selling has been what has been described as "orderly".
Many, but not all, sell offs that mark tradeable bottoms have a volatile, climactic period where prices trade down violently in a very short period of time. Recent weakness "feels" like nothing more than a persistent offer to sell equities, but no panic.
So while a reflex rally is possible this week, I will be playing with smaller positions in what should be low trading volume after Tuesday. If a defined uptrend emerges with a valid confirmation day, there will be plenty of opportunity to latch on to the next bull phase winners.
Patience is the key, for now.
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