Skip to main content

Markets recover - is it time to celebrate yet?

Yesterday's post reviewed the situation on the charts of the major averages and came to the conclusion that there was a good chance we would see another leg down in the current correction.

For a while today it looked like we were going to see that decline immediately but at the last minute, the averages turned up and reduced their losses and in the case of the S&P 500 actually finished with a small gain.

The most significant development of the day was the resurgence of the financials. ETFs like XLF racked up 3% gains and REIT ETFs like IYR managed a 2.5% gain.

Still, I'm not sure this is a time to breath a sigh of relief. We have seen over the previous few weeks similar behavior where the averages would close with a flurry of buying that seemed to save the day. During this time numerous observers pointed out that the advance/decline numbers were troubling at best. The end result of this kind of market activity has been what we see now: the averages at or below their 200-day moving averages and most, if not all, of year-to-date gains evaporated.

Today was similar. The A/D numbers were dismal. On the NYSE, decliners were almost double the advancers. On the NASDAQ, it was more mixed but decliners outnumbered advancers by about 20%. On the AMEX there almost three times more decliners than advancers. These kinds of numbers don't generate much optimism.

Looking at New Highs/New Lows is also an unhappy exercise. There were literally only a few new highs on any of the exchanges but over a thousand new lows on the NYSE and over 300 new lows on both the NASDAQ and AMEX.

With these kinds of numbers it seems unlikely we will see the bull market resume any time soon. This is not to say we won't see some rallies but I expect we will see several weeks of volatility before a clear up-trend is established. Conversely, I suspect it is too late to take new positions in the inverse ETFs QID, SSO or DDM. Hopefully, readers have raised some cash that can be deployed when the next trend is revealed.

As for the financials, since there were no major changes in market conditions that would affect these stocks one way or the other, this rally is probably just a reaction to the feeling they were over-sold.

Dislcosure: author owns shares of QID

Comments

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professional

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas. Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what