Sunday, March 2, 2008

Dancin' with the Devil

Well, I guess push is coming to shove. The players are starting to get a bit panicky, the NYSE upside-downside volume on Friday was seriously lopsided on the downside. I guess inquiring minds want to know, "Is it a bottom yet?" Well, in my opinion, not quite.

The SPX tried to rally, but was soundly rejected at the 50 day moving average and the upper 20 day Bollinger Band. Feeling slighted, prices are running hard in the other direction. If the SPX penetrates the lower Bollinger Band (1300-1316) then a retest of the January low, at a minimum, very likely.

Looking at the McClellan Oscillator we can see that it is starting to get oversold again at –118. Given the current market climate, I question whether or not, this is oversold enough to launch a reliable turn higher. I seriously doubt it. Further, I would like to see the 10% Index of the MCO penetrate the +500 level on any future rally before I would have much confidence that a trend change is in place.

On a positive note, at least so far, the 10% Index is currently at -182 and even if we have a nasty day on Monday, it will stay above -500. It would also get the MCO oversold enough for a rubber-band bounce to the upside. It would be preferable to see a continuation of the sell off on Monday rather than a weak bounce which would only confirm the bearish trend.

So while Friday looked a bit like the start of a selling climax, I think the SPX has farther to run on the downside. There is a reasonable chance we bounce higher Monday or Tuesday But somehow I think this will only be temporary.

Dancin' with the Devil? Picking bottoms in a bear market.

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