Thursday, July 17, 2008

Is the bear dead?

The big question in every one's mind is did yesterday mark the end of the bear or at least the end of this leg down?

I can assure you that every hedge fund manager in the world looked at that first chart on Monday night and came to work Tuesday ready to buy stocks, especially financials since they have been beaten up the most. There have only been a few times in history when new lows have expanded to the levels seen on Monday. Every one of those times the market was within a day of an important low.

Looking at the next chart we see that so far the S&P hasn't even broken the trend line or penetrated the 10 DMA. Unlike other bottoms we haven't seen the index accelerate away from the 10 DMA as investors panic. There never was any panic during this decline just steady selling.

So did we see the bottom yesterday? Most of the signs are suggesting we did. However I'm worried that everyone now thinks the bottom is in and it's safe to jump back into the pool. When everyone starts thinking the same thing then no one is thinking. This bear may just have another trick up his sleeve. I'm going to wait until we at least break the trend before jumping on the long side.

The weekly chart gives us an idea where we might want to exit those longs and start selling again. The first level of serious resistance if the S&P can make it past 1255 (the Mar. intraday lows) would be at the 200 WMA. In bear markets this level is rarely recovered once it's breached.