The Simple Acco...'s  Instablog

A quick note on Tuesday’s stock market action. The market opened gap down, as expected, on all of the overseas selling of the prior two days, but the low of the day came at the open. It was mostly up from there, with a nice surge on strong volume in the last half hour of trading. We had several recent market leaders post gains in the 2-3% range: AAPL, GMCR, NFLX, AMZN, LULU.

I wouldn’t be calling a screaming buy just yet, because there is still too much uncertainty and the banks are in real trouble, but it’s more evidence that the unreserved bearish commentary we are seeing is overdone. As I have been writing in my weekly articles, we’re in a new trading range and could break out in either direction. I still think it’s just as possible that the market is building a base for a new rally, as it is that we will see a collapse.

We don’t tell the market what it should be doing, we let the market tell us what it wants to do, and position accordingly.  

There has been some commentary, as we should expect, regarding what appears to be an imminent “death cross” (50 day moving average crossing below 200 DMA) on the S&P 500. This has been met with the rebuttal that the death cross just over one year ago not only turned out not to be a bearish signal, but very nearly marked the exact bottom in the index for the move – therefore proving once and for all that technical analysis is utter nonsense.

What the critics do not point out, is that the “death cross” was not confirmed by the MACD, which made a higher low at the same time. The point is that no serious analyst makes portfolio moves based on a single technical indicator. It’s the confirmation and convergence of multiple indicators that give a high probability signal.

(click on chart to enlarge)

As a service to my readers, in case publication of my article this week is not in time for the Tuesday open: the NYSE Arms Index and McClellan Oscillator closed Friday at a level which indicates a heavily bought condition in the very short term. This suggests we may see a significant pullback early in the week. Be careful!