Tuesday, September 16, 2008

Turn Around Tuesday? - MCO Update

The gloom and doom is so thick you can cut it with a knife. Frankly the fundamentals are as foul as I can ever recall but maybe enough is enough, for a little while at least. If the indexes don't collapse tomorrow (still a possibility) then todays low is looking like it marks an important reversal point. Yes, prices will possibly retest today's lows, maybe even exceed them, but if the the positive divergences remain, today was a turning point. (see the chart notes) Of course, if not, then it's not.

Annotated chart - click to enlarge

Initially it is best to consider any reversal here as just the start of a
trading rally. While the 65 min indicators (MACD, STO, RSI etc) reversed
yesterday, the dailies are still negative and need to be watched closely.
Note the steadily increasing volume on each of the major lows over the last year. The 10% component of the MCO made its lowest reading at the July 15 low, I think this was the capitulation point, making the current low the retest.

If breadth can hold up over the next few weeks, during what will probably
be a backing and filling period, then we can be more optimistic over the
future direction of the market.

The fact that the 10% index didn't go any lower really surprised me,
especially with the current market conditions and news. I actually didn't
think it would happen until late yesterday afternoon as I was running the
numbers. It's still not a done deal, that will take more time.

The McClellan Oscillator is the first indicator I ever used, I hand charted
it for many years (including intraday during the 87 crash) so I really
understand how the numbers work. The -500 level I've been referring to was
once -200, it has been creeping upward as the number of issues increased.
So the exact number isn't important, it is relative, but if you look at my
MCO chart over the last year, all the deep plunges have turned the market but
failed to produce a bottom.

So, if yesterdays low in the 10% index holds up it would be very encouraging.
Second, this can produce a good rally which later breaks down with the
10% index going below -500 again, that wouldn't be so good.

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