Conventional market wisdom sates, “From failed moves come fast moves.” The lack of an immediate follow through to the selling on Friday indicated that panic had not set in motion capitulation and the action through today carried over the premise of methodical distribution and not the beginning of a rush to the exits. In lieu of today's strong move with the indexes closing up over 2% the present situation should be reevaluated with current information.
Looking forward by looking back, the action of last June is analogous to what is currently transpiring and may give a road map to one possible scenario. Using the 50MA and 200MA as reference points, the NASDAQ undercut the 50MA and bounced only to fail and dip below the 200MA where it found a near term floor and began a strong counter trend rally into mid July. This pattern is possibly repeating now.
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| NASDAQ 2011 |
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| NASDAQ 06/06/12 |
While the longer term trend continues to be down, strong counter trend rallies are not unexpected under these conditions; after all, many of the largest intraday moves occur in down trending markets. Currently the primary signals I use to indicate a healthy market for me to trade in are still squarely bearish. If this move becomes more significant in magnitude than just a tradeable bounce my indicators will flip early enough to take advantage of the situation, but until then...
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