Concern over Spain sent global markets tumbling. While the market and Euro recovered 1/2 of their initial losess, it was still a day where doom and gloom dominated the news.
Continuning the recent pattern, markets bounced from their early selloff. In weeks past, this marked the low of a down move; will it do the same here? Every trend must come to an end, and so will this one, but to make money in the markets we also need to nail the timing. So do we buy the dip, or sell the bounce?
The positives are the market bounced off of the 50dma again, showing accumulation at this level in addition to the bears inability to push us below it.
We also maintained the a lower trend line connecting the lows of this recent move. All highly encouraging developments. But as a contrarian, the question I am left asking is if this pattern has become too obvious, and thus suspect to breaking down?
This will be the 4th bounce and even the most novice chart reader can see the pattern. The problem arises if the most novice of chart readers is also the ones buying this dip. After they’ve committed their capital, who is left to buy and support the market? Without follow on support, the market will inevitably turn south.
As any regular reader of this blog knows, I’ve been fairly skeptical of this most recent rally and am not sure it has the foundation and support necessary to break summer’s trading slump. I’m not predicting an economic crash, just expecting we need more basing before resuming the longer-term bull market. But that my attitude will quickly change if we start making new highs again.
The poke above the previous high last week could easily be a short squeeze, but to return and superseded those levels so soon after will show material support from larger investors and make the breakout buyable.
I’m on the road again, so my blog posts will come later in the evening. I apologize for any disruption this may cause. Further, this post is coming from my iPhone and as most people know, the editing capabilities are not the best so please excuse any typographical and spelling errors.
Jani Ziedins (pronounced Ya-nee) is a full-time investor and financial analyst that has successfully traded stocks and options for nearly three decades. He earned a B.S. in Mechanical Engineering from the Colorado School of Mines and an MBA and M.S. Marketing from the University of Colorado Denver. His prior professional experience includes engineering at Fortune 500 companies, small business consulting, and managing investment real estate. He is now fortunate enough to trade full-time from home, affording him the luxury of spending extra time with his wife and two children.