Tuesday, January 8, 2008

Equity Market Comment For The Close Of 1/8/2008

The Advance/Decline Ratio is starting to do just the opposite of what it began doing at the top of the rally when the Dow was trading just over 14,000.

While the divergence is a bit thin it is a positive just the same.

We had a fairly reliable hourly chart pattern just like the pattern outlined on this hourly chart.

This offers us a bit of a clue to the probability of the next move.

As I had talked about yesterday, it was imperative that the market today not violate the lows of Monday, but that did not happen and thus is a bearish signal. Although taking out the lows today leads to the possible pattern in the last chart of this post, we did have yet another bullish formation today, an Outside Day with a Down Close. This pattern is especially reliable if it forms after an extensive decline and I think this current decline would qualify as extensive.

The taking out of Monday's low and a close below that low brings into light the bottoming pattern that is shown below. This indicates that the market needs one more push down in order to complete the bottoming process, but it also indicates the possibility of a very trade able rally on Wednesday.

The bottom line is that I remain cautiously optimistic about the current market, but I do stress caution as the volatility to the downside has been very strong.

Sentiment as measured by the Put/Call ratio is making its way just inside the buy area so that is a plus.

I have not added any new positions as of the close today and conservative traders should continue to be very careful in here.

More aggressive traders (Like Me) can begin to accumulate equities if and when the current road map I just laid out begins to confirm itself. Remember also that we do have risk all the way down to 1340 on the S&P 500 so be very careful in here.

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