Tuesday, October 14, 2008

Nice rally on the outside, but all hollow inside

The media got its rally, but it was one driven by the shorts rather than the buyers which firm up a bottom. It was interesting to see the Dow bullish percents fail to register a single point-n-figure 'buy' signal.

The only bullish percents to register a 'buy' signal was the S&P:

The one day gain was enough to bring many of the indices very near to the 38% Fib retracement. The Dow made it over the line intraday before retreating a little into the close.

The Nasdaq has room to run before it gets to its 38% Fib retracement:

But the real problem with Monday was the lack of volume. Perhaps Friday took much of the wind out of the sails, but given we had clawed back close to two days of heavy volume losses it would have ben better to have seen some confirmation from the part of buyers to show demand.

The good news was the wiggle room it gives on the downside, with the lower Fib retracements and/or the morning breakout gap as opportunities for buyers to enter the market on subsequent weakness. It would be better if this weakness happened in small steps over the coming week just to provide some stability.

The other positive was the relative controlled form in the Transports; measured panic may be the best way to describe it. Notice the bear trap from the broadening wedge:

Transports area a sector to watch over the coming weeks; lower oil prices will help their cause.

Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, market alerts and stock charts website