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Monday, August 16, 2004
Good evening friends,
Market Recap
The markets started off the week with a nice rally. The Dow was up triple digits with a +129 point gain, the NASDAQ gained +25 points, and the S&P was up +14 points. The rally may look good on the surface, but when you check out my favorite indicator (volume) you can see this rally does not amount to much. Today's volume was very low on these indexes compared to real rallies. Most individual stocks that were up today were up on light volume as well. This light volume indicates to me that this is just a slight market bounce to relieve an oversold condition. The last oversold bounce started a couple of weeks ago and lasted about five days before running out of gas. Could the same thing happen again? Looks like it very well could.
Rally From Oversold
The market was deeply oversold before today's action, and as mentioned on Sunday night, it was just a matter of when the bounce would come. These bounces will happen from time to time in a bear market. To give you an example of the bearish conditions of this market, about 85% of stocks are under their 50 SMA and about 80% of stocks are under their 200 SMA. These are bear market like numbers and huge market rallies usually occur when the overall breath of the market has these types of numbers. This is a good indication we are nearing a bottom for this recent bear market. However, big rallies in the summer months are virtually nonexistent. Going back to yesterday's commentary, I said that a rally could and would probably start in the last two weeks of August or the beginning of September.
I also mentioned last week that the NASDAQ was at the 38% Fibonacci retracement level and could see a bounce soon. The market rallied today as a result of this 38% target on the NASDAQ. This rally has the potential to last from a few days to a week, so I would not be 100% short at this time. We are at a juncture where we have to be flexible and react quickly to market conditions. I covered some shorts today in case the rally sticks. I also took some new short positions today on some strength in some previous losers that were up on light volume. Tight stops should be place on these new short positions as well.
With the oversold bounce underway, we will look for short positions in stocks that have rallied up on weak volume. Some of these might be ready to move lower after this market moves up for a few days. I am sure there will be a number of very bearish patterns to trade from once the rally fizzles out, and with this anemic volume this rally is sure to lose strength.
So many stocks have been crushed over the last month that it is difficult to find a chart that looks ready to move higher or lower. Finding positive stock charts with some up side potential has been nearly impossible. It is one of those times where there is not too much to realistically trade right now.
All of the major indices continue to be in bearish downtrends and it will take some time for these charts to heal. A small rally is due, but keep in mind that there will be some backing and filling in the months ahead to repair the charts and set them up for advance. This repairing will not happen overnight.
OTC BB Watch List
- PWRM
- AVCA
- RIMI (listed here last week at .55 closed today at .75)
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