Wednesday Market Momentum Breadth Volume
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The dk-report had a nice post today that I recommend reading. Basically he said the market remains under pressure, no significant signs that a bottom is in, breadth is oversold but still has a little room to move lower... while the economy is still decent and therefore we have a good set up for buying in the coming weeks.
I agree with all this except I am perhaps a little more concerned about the economy than he is. Maybe he has a cooler head than I do during a time like this, but I think you have to be concerned with financials and consumer stocks under so much pressure. We also may be looking at different time frames. John Murphy pointed out that it took a year from the time of the dotcom crash before the economy was declared in recession.
Supporting the view of dk-report is the ECRI economic index. This index has declined and is headed lower, but is still at a level showing growth ahead. I think their predictive time-frame is about six-months.
The breadth analysis is generally supported by Investor's Intelligence. They note gigantic selling climaxes last week which often indicate a bottom is near. Also, their bell curve of industry strength is almost completely to the left which also indicates a bottom is near.
A consideration before buying is the fact that the S&P500 is below the 200-day moving average. Mark Hulbert periodically writes about the Faber-rule which is to generally avoid stocks while the SPX is below this moving average. I like this rule because you never really know for sure if these corrections are bull market pullbacks, or tipping points for a new bear market.
In the event we continue lower, I'll watch the 12,700 - 12,800 support range in the Dow very closely. If I see some stabilization, followed by volume backed upside action I'll highly consider building positions. Until then, I'm staying away from the long side of what is quickly turning into a bear market. (Comment this)
A reader at the InvestorVillage.com ^IXIC board asked me about the same thing you noticed, and here's my bond-centric response. Thanks again, H. (Comment this)