Securities Research Services

Thursday, January 10, 2008

Follow Through Significantly Higher Not a Sure Thing

Yesterday the market bounced off oversold conditions. This bounce was inevitable either sooner or later. What is not clear here is how far the bounce can go from here. Sellers are going to be chomping at the bit to short any rally here and just about every analyst out there is looking for at least two or three up days following yesterday's reversal.

The market tends to make monkeys out of the most people most of the time. Will it make a monkey out of the analysts who are looking for a tradable rally from this level? It remains to be seen.

Right now the market is pinched between the hard place of oversold conditions, increasingly bearish sentiment, and a vicious downtrend that promise to create a strong headwind for the bounces.

Barchart.com still has the SPY rated at an 80% sell in the short run and a 96% sell in the long run.

The Nikkei average, which tumbled 4% last Friday, leading to a similar sell off in the US markets that same day, bounced 2% yesterday, only to give back more than half those gains today. Likewise, London's FTSE, which seemed to be stabilizing yesterday, is struggling to keep its gains at the time of this writing today.

Without follow through on the world markets, there is certainly no guarantee the US markets will see follow through today.

This market is guilty until proven innocent and yesterday's strong reversal isn't good enough evidence to declare the market not guilty. It's a start, but that's all it is, just a start.

3 comments:

Geoff said...

Good observation - I agree, but that may be a bad thing. I posted a similar observation on my blog. This bounce may turn into a tradeable rally but I have my doubts. I'm willing to wait and see before jumping in. Right now we are in 100% cash.

Anonymous said...

It made a monkey out of me. :(

SRSFinance said...

Well, the market makes us all look bad from time to time. Admitting when you are wrong is the best way to prepare yourself for the market's curve balls and improve your averages. It takes a strong person to admit a mea culpa.