Securities Research Services

Tuesday, June 12, 2007

Dead Cat Bounce Pattern

Yesterday we noted the similarities between the way the XLU traded late last month and the way the major market is trading now. Indeed, yesterday the market bounce started Friday stalled as volume decreased. This classic dead cat bounce pattern increases the probabilities of a fresh leg lower.

Will it turn into a waterfall decline? We have no crystal ball to answer that question with. It should turn into a decline, but what type of decline it turns into is anyone's best guess. If the decline back to last week's lows attracts more buyers, then we may reassess our bearish posture. If last week's lows give way to further selling though, then prices will likely decline significantly further.

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