As I mentioned in my last S&P 500 post “I may say that in short term I’m not as optimistic as in mid-term. There are some strong indications that we may see down-move… It could be for a few hours, it could be for a few days… Short-term chart are very dynamic and they should be monitored in real time…” - we saw strong development of the down move over the last three session. My worries about the volume surge (see the same post) was confirmed by strong drop on all major indexes. I did not expect to see such strong decline, yet on Monday after the market opening deep down my favorite the 60-day chart became stgrongly bearish.
The main question for me now is: “Is the recent drop a resuming of the long-term market recession or this is just a second wave of the retesting recent lows?” Under the second wave I mean the second attempt to hit lows before going back into the Bull market. If you go back to my S&P 500 post on January 27, 2008 you may see that I already mentioned about high possibility of revisiting lows. I will go back one more time to what I already told:
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, 2008
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.
Overall, I still assume that there is good possibility of the reversal. The volume generated in the January is too big to be ignored. However, so far the indicators are bearish and they point to the possibility of the further slide. In such volatile market everything could be changed very fast.
Yes, each time such strong drops make everyone nervous… For me the best strategy in such market is to stay in cash…