Double Bottom Forming or Just a Pit Stop on the Way Down?

Too early to tell but an interesting juncture in the near term at least... we are now at last week's low point - one could make the case a mini double bottom has formed (off S&P 500 level 1330), from which the market would traditionally bounce. Or it could simply be the market marking time, before a larger move down.

Either way our trading range is narrowing and we should know soon which way the next move is... a move above 50 day moving average (now below 1370) would make us short term bullish, and a break down below S&P 1320 would make us short term bearish. We've navigated this downturn very well this week, so I've lightened up short exposure here and simply moved much of it too cash.

Anything between 1330 and 1370 is simply white noise to me at this point (3% range) - until we make a clear move out of this range its just random trading. My gut says, some order of bounce is due here since things have been quite negative for a while and things don't move in a straight line up, or down. If there is a failure for even a cursory bounce from here, that would be quite bearish...

I'm still thinking of a rotational correction to follow past patterns - looking for any signs of strength in retail, financials, and homebuilding... the latter has at least seemed to stop going down. Or I guess coal fertilizer and natural gas can go up every day for the next 120 days. We'll see how it goes. Currently swimming in US Pesos at 28.5% of fund, awaiting clarity.

You expert technicians out there - feel free to add your viewpoint in comments... I'm an amateur technician (at best)

Comments

[Pauly B]

I will be glad when the banks get all the toxic waste out off their balance sheets. The next two quarters should be interesting. I see no turn to this market to the upside without the financials and think we will retest the lows from March. The fundamentals of the market stink, the technicals stink, and now we are starting to get the psychological piece coming into play with the recent warnings from RBS and others. This is the piece we have not gotten from the street. This is the light at the end of the tunnel for the bulls and is actually good news.

[JE]

I am also looking for something of a bounce maybe when OPEC says they will increase output if they doandthe Fed meets Tues. and Wed. and then the ECB meets on July 3rd.

If OPEC holds or the ECB raises rates the market could have a huge downside.

The top side looks like the 8day moving avg atabout 12,200, the last upday at 12,300,and I don't think we could get to the 38.2 retracement from this mornings lows to the high at 13,136 which is at 12,354

The channel to the down side is narrowing. I would use any bounce to buy more puts. I think we have considerable downside exceeding the Jan lows.

[alphameister]

It won't suprise me at all if the financials, housing and retail sectors break their March lows in the months ahead. I am equally confident that energy stocks generally have seen their lows and are embarked on a long-term bull market. The same is true for most technology stocks and industrial stocks that derive a substantial part of their sales and earnings from overseas markets where growth is faster and more soundly based.

[carey_jim]

Markets will probably be driven by economic fundamentals for the foreseeable future and not technical analysis.

There will always be profit taking and unforeseen events that drive sectors up and down, but we've finally hit the end of cheap energy and US world economic domination. The war in Iraq is a symptom of this as well as a cause.

I can't see how technical analysis is more than rearranging deck chairs on the Titanic at this point. But traders will always be with us.

[Jim Hawthorne]

carey_jim!
It's true that fundamentals drive markets; technical analysis is just a tool for visualizing trends and setting entry points and exits, and making other trading decisions. Here's a challenge:
I suggest you follow Brian Shannon for a couple of weeks. www.alphatrends.blogsp.../

Then see if your thoughts on technical analysis are any different!

[Jim Hawthorne]

Trader Mark, we are indeed quite oversold as of today, Friday June 20th. I sold off my contra ETF's into the close after a very profitable week. Will wait for the next oversold bounce mini rally to go back in, as I believe alphameister is correct and we still have lots of downside risk.

[pooramerican]

I think we are about to see another big leg down.
in terms of support, the S&P looks really broken now: 1348 was taken out(50% retraction from the rally's high) and 1326 was taken out today. I am looking for 11500 on the dow to see if if that will hold.What I am most interested at this moment is gold price

[FL_Geezer]

Re market's direction: rather accurate predictions, similar to the bearish ones above, were posted by Fritz Hottinger some months ago.
Most interesting is his notion that a world currency would remove all speculation in the dollar that is now driving world inflation.

(See his postings here for the website and list).

[jegan ;-)]

Funny.... That bottom looks just like the May 27th and June 3rd bottom on the same graph above ....Ummm, which didn't rebound either... The chart shows nothing really ... Thx jegan ;-)

[Dusty]

The Genie in my Bottle of Smoke says this is end of quarter, end of first half. Some big money funds must move around a little bit, breathe(?). Last day or two of June, first few market days of July. Keep your seat belt tight. Then we decend to a late summer crash (Ref: Royal bank of Scotland, others). That will carry us into Alt-A housing and credit mess Part 2 (Ref: Credit Suisse Mortgage Resets chart) and more. We are really not even half way down the first big drop on the roller coaster.

What is scary is that the Genie may have it together. I am holding what cash I can.

[intown218]

The white noise range is not 1330-1370. I believe a break above 1370 is not decisive but a break above 1410 will have some meaning because that would constitute a break out of high volume range of the past 3 months. (See a Volume by Price chart). With the recent volatility, anything in the range 1320-1410 is white noise. However, to be really sure of getting out of current downtrend we need to close above 1440.