Monday, August 17, 2009

A Little Coaching and a Quick Look at the Stock Market's Big Picture

I just talked with a couple of traders who were getting a little too eager to do bottom fishing in this morning's weak market. While there is some historical precedent for a bounce after such a weak open, we need to see evidence of buying interest before assuming that such a scenario will play out. To this point, the distribution of NYSE TICK readings has been quite bearish, with multiple readings below -800, but none above +600.

Above we see the bigger picture in the market, with a daily chart of the ES futures. Note that, as long as we stay below the lows from 8/12, we are accepting value lower, below a multi-day trading range. I'm showing many more NYSE, NASDAQ, and ASE stocks registering 20-day lows than highs, indicating growing weakness in the market. We see sustainable turnarounds generally when selling dries up, not when it is accelerating. While being alert for a bounce is worthwhile, it makes sense to let the market show its strength first and not attempt the proverbial catching of falling knives.