5 replies to this topic

[Tor]

and its still above 1500. Incredible. I am holding flat for the moment however. Breadth Readings Approach Recent Extremes 05/24/07 3:10 PM EST Breadth continues to sink lower as the day progresses, with more and more issues flipping into negative territory. It has gotten so bad now that we're seeing four times as many "negative" stocks as "positive" stocks for the first time since May 10th. While these kinds of days are always scary, we should keep in mind this fact - since the July 2006 low, there have been nine trading days where decliners outnumbered advancers by 4-to-1. Buying the S&P 500 at that day's close and holding for a week resulted in 9 out of 9 winning trades, with an average return of +1.5%. The average maximum drawdown (i.e. loss) during the following week was -0.7% compared to an average max gain of +2.0%, nearly three times as large. Obviously, those occurrences were during a big bull run, which we may be at the end of now. We won't know that until after the fact, and it should be noted that these precedents include several during the late February, early March scare earlier this year. Today's pressure has triggered all sorts of big negative breadth readings, including the TICK that I mentioned earlier. We have seen more 5-minute bars with an extreme reading under -1000 over the past day than we have seen at any time in the past three years (May 10, 2004 was the most recent instance). These are the kinds of readings we usually see after a prolonged decline, and not often so soon after a new high. I checked to find other times we saw a 4-to-1 negative skew in breadth the day after we hit a new yearly high, and I could find only seven occurrences over the past 40+ years. Unfortunately there wasn't much consistent going forward, as future performance was perfectly in line with random. So we're seeing some severe short-term oversold conditions here, which when combined with the upcoming positive seasonality, should lead to higher prices when looking out through the end of the month. About the only reason why that may not be the case is if the larger trend is undergoing a change, in which case oversold readings won't mean much, so intermediate-term investors should be just as interested in how the market reacts to these oversold conditions as short-term traders are.

Edited by Tor, 24 May 2007 - 03:24 PM.

[nimblebear]

But the market is poised to go to 15000. Shorting remains to be hazardous to one's health. I just don't see how the market can go down.

[thespookyone]

But the market is poised to go to 15000.

Shorting remains to be hazardous to one's health. I just don't see how the market can go down.

Same way it goes up-just twice as fast.

Spooky

[JAP]

But the market is poised to go to 15000.

Shorting remains to be hazardous to one's health. I just don't see how the market can go down.

Same way it goes up-just twice as fast.

Spooky

Good one!

[ed rader]

But the market is poised to go to 15000.

Shorting remains to be hazardous to one's health. I just don't see how the market can go down.

how true, and you don't need a stop loss if you go long because this market will always bail you out .

ed rader

[johngeorge]

Yes, I too think the market is at internal extremes. $BPNYA weekly chart. $BPINDU weekly chart

Best to you.