As I mentioned before (read my NASDAQ 100 post we had a strong recovery. Yet, the last day of the week, we saw 2% pull back on the NASDAQ 100 and around 1.5% drop on the S&P 500 and DJI. The main question now is: Was the strong rally up on January 23-24 a beginning of the mid-term up-trend or this was just a correction up during the dominant Bear market?
The main indicators on my chart show that we have strongly oversold market and there is no way that January 23-24 recovery could move market into overbought condition. With more confidence I may say that I assume that we are at the beginning of the mid-term up-trend. I base my assumption on the fact that we had strong volume accumulation during the recent crash; we had huge volume surges during this crash that indicate the extremely high panic selling. The fact that we saw reduced volume activity on January 25 may indicate that worries of the traders go down. The VIX volatility index is down (29) after hitting high (34) on January 23. That suggest that investors are calming down or we may assume that the number of investors who is in panic is reducing. That should not be a surprise after those volume surges we saw. Many investors who was in panic already sold… As I always mentioned before, the main question is “who bought from them”. There no doubt that there are some forces on the market that are buying now from those who sells in the panic – that’s why see the big volume surges.
Again coming back to the chart I may see strong mid-term bullish indicator, however, digging into lower timeframe I may see the possibility of the down market. If we take a look back in the history we will see that in majority cases the downtrend is very volatile at the bottom and we may see at least one strong attempts to retest the resistance level before the major up-trend become stable:
We saw attempts to retest lows on August 27-28, 2008In summary I assume that the odds are on the side of the mid-term Bull market, yet, I see the possibility of further slide and even retesting the recent lows. Again, the market is very volatile and for more conservative statement about the mid-term up-trend I would like to see the indexes moving up and making new highs. So far the market is still in the dangerous zone…
On March 13-14, 2008 the market retested March 5, 2007 resistant level before moving up
On July 16, 2006 the market retested the June 13, 2006 resistance.
Even taking look at the long-term downtrend in period from 2000 to 2003 we may the S&P 500 retested the July 24, 2002 low twice: on October 9, 2002 and second attempt was on March 13, 2003.