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Is the bottom in?

  1. redabyss

    1,383 Posts.

    Early last week, based on a particular Elliott count, I called for a steady down in the USA followed by a one week rally and a final descent. We had the down and started the rally, but the size of the rally has invalidated the count, so one has to ask - is the bottom in?

    The present situation now looks very much like the September bottom. A selling crescendo, back-to-back 85% down/up days, weak buying. In both cases one could be excused for believing that another leg down was on the way, despite the heavily oversold nature of all indicators. In September however, the market continued to go up for five months - on weakening volume.

    There are a few differences this time. The market is technically weaker in a number of ways. The S&P is operating under a downside head and shoulders target of at least 5700. OBV and volume generally has continued to fall since the 2000 top - while still being three times what it was in 1997/8 - and has become more volatile. The A/D is on a slide. The proportion of the US market owned by individuals has fallen by 10%. The price fall was more measured and the reversal on considerably weaker volume. None of the pundits are prepared to say that this is a bottom.

    "I think we'll be stuck in a trading range for a while. There's no reason to rally from here and many investors have been scared out of the market. I think the next leg up may arrive in October or November if the economic data continue to improve and corporate news turns more positive," Suskind said. A base-building process, he added, will allow investors to evaluate the economy's progress "

    Nevertheless, with the Dow on 1998 support, conditions otherwise pretty similar to September, the US$ rising and gold falling hard, and a good chance of a Dow rise to 9200 or so (right shoulder) and SPX to 950 (neckline) it would be excessively risky to be short at this time. I have made a reasonable profit over the past week, and think enough is enough.

    While many are urging care on the upside, I am therefore urging care on the downside. I will be (belatedly) clearing all risky puts, re-evaluating some such as BHP and WOW that still have a chance, and may even get into bank longs.

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