Tuesday, November 18, 2008

New 52 week lows are not confirming the recent decline

On Oct. 10th 92% of all stocks on the NYSE made new lows. So far that has been the internal bottom for this market. On each successive decline fewer and fewer stocks have been moving lower. Most of the stocks on the NYSE are not confirming the new lows. Not what you want to see happening if you are heavily short.

As of today the current trading cycle is on day 27 (the average length is between 28-43 days) The odds are very high that this trading cycle low will also mark the 22 week cycle low. The odds are also good that we will see a powerful counter trend rally out of this low.

Thursday's 2b reversal may have marked that low. At this point it remains to be seen. Either way we are getting very late in the cycle to be short. Sure we very well could see another move down but I dare say at this point it seems like that is what everyone is expecting. It seems like many bears are now anticipating a move to 500 quickly. I'm not so sure this bear market is going to make it that easy on the bears though. Remember the market will do what ever it takes to fleece the most participants. As of today the dumb money confidence was back down at levels that have marked intermediate lows in the past.

This late in the cycle I would rather be long or in cash than risk getting caught on the short side hoping for a few more days of declines. If the weekly cycle bottoms the ensuing rally could be deadly for bears caught on the wrong side.

Take a look at gold on Sept. 17th if you want to see what can happen as a weekly cycle bottoms in a bear market.