Wednesday, July 22, 2009

Rally is Getting Very Tired

Top Line: Unbelievable...NASDAQ is up eleven days in a row. There is an end to such moves.

Yes, the Dow was down on the day after its own seven day up move. Is it possible that the market could turn down for a few days?

You may be feeling it, too, all the bullishness after a big up move. Where is that bullishness before the up move? Normally, people don't get bullish until After the move. Complacency is at a peak as well as measured by the volatility indexes. Maybe we should say Fear is at a low point as people now believe the market will go up some more.

We don't believe that the market has much upside in the short term but now the question is more about how low can it go. The answer is that the market can go down just like it went up. As people notice the market has gone down, they will get more bearish...amazing how this works.

We look back over the past couple of weeks and notice our own advice about how the market would go down to about 850 and probably lower. Then there was the talk about how the world was expecting a break down from the supposed head and shoulders top and were setting up for such an event. We thought that as the market dropped below 880, people would start anticipating such a move down to 800 in the SP500. We also mentioned that these short sellers would not be rewarded for their thought process because the market would not fulfill the normal head and shoulders pattern. We should read what we write and take that advice.

But, what to do now after a 10% up move in two weeks? We believe that the path of least resistance really is down with so many bullish, or should we say relieved, stock owners. The volatility indexes have struggled to go down although they have dropped a little over the past few sessions. This summer rally is almost over and we'll have to wait and see what kind of down move we can get. The next two days should be revealing.

Back on Sunday.

1 comment:


Rallies always die out sooner or later.