Securities Research Services

Friday, July 18, 2008

Near Term Momentum Reverses

There was no capitulation and fear levels did not reach anywhere near what should be expected for a significant bottom in this downtrend. Nevertheless, the market is seeing reversals out of its vastly oversold condition. Oil breaking its trend has certainly helped matters.

The SPY has not followed through significantly and has merely moved from a neutral trend to a sideways trend. But the Dow and NASDAQ have clearly reversed momentum from down to up.

Dow experiences a Hammer reversal on its weekly chart.

The QQQQ has put in a higher low and found support at its 200-day average.

Given the fact that we have not yet experienced capitulation we suspect that another downswing may be ahead where last week's lows are retested and will perhaps give way to lower prices. Before that occurs however, it is important to recognize the fact that near term momentum has changed and that a tradable rally is underway. Profits will need to be taken quickly, but there should be profits to be had on the long side for a week or more.

Note: While the near term trend for the SPY is still neutral, the trend has turned back up on both the NASDAQ and Dow. It is likely that SPY will follow and turn higher as well. We seriously doubt this is the end of the bear market, but a tradable rally appears to be developing within the primary downtrend.

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