As readers of this blog know, I use historical studies of market action to identify possible directional edges going forward. This morning we see a number of positive edges, from the reduced number of new lows on Wednesday relative to Tuesday (Rennie Yang's Market Tells service has a nice perspective on that) to the elevated negative sentiment to the non-confirmations I've discussed in recent posts. Readers also know that I consider it useful to identify when markets fail to act on their historical precedents. When markets *should* move directionally based on historical precedent and don't, *that* is also useful information. Something is different in the current market that is outweighing those historical dynamics.
While a number of historical indications of rally potential have been present, the market "tape"--the NYSE TICK, the advance-decline numbers, the money flows--has been tilted to the bears. With important support at the Tuesday and Wednesday lows, it's time for market bulls to put up. We need to see a meaningful rally off these oversold levels or the downside could get sharp and ugly. This is a time to be flexible, to be attuned to the market tape, and--above all--to balance the pursuit of opportunity with the prudence of risk management.