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So
what does all this spell out for the markets? Thus far we have seen the
US stock-market go through an A-B-C type correction. Click on this
link to display the charts. As of
right now, the trend in the market is DOWN, however, from the
price-charts and COT data it looks like the worst of the decline is
already behind us. If you look at August's reaction-low (point C),
you can see a "hammer candle-stick" on most of the charts. This
tells me that there is significant support for the markets at these
levels: What stands out? The Russell 2000 is displaying relative-strength compared to the other indexes after displaying relative-weakness during the month of July. Specifically, the RUT has put in a double bottom (blue line) where as the other indexes made lower-lows. From the COT-charts, the NDX looks the most bullish as commercials saw the decline in the markets as a buying opportunity. The other indexes look more neutral than anything else, as commercial NET-POSITION has remained largely unchanged before and after the recent decline in the markets. However, this does not mean that it cannot dramatically change this week or next, so stay tuned... In conclusion, there are clues to suggest that a bottom is in place for the markets, for confirmation we must watch the recent August lows to see if the indexes will hold above their respective levels of support. For confirmation of strength - I would watch the 800 level on the Russell 2000. This is a very critical level of resistance right now; if we break and hold above this level I would expect the markets to resume their longer-term up-trends.
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INFORMATION The opinions of FSU contributors do not necessarily reflect those of Financial Sense |
