Wednesday, December 08, 2021

Dead Cat Bounce?

Markets made an attempt to bounce after a few days of consolidation. The started with a gap higher and lead indices were able to build on this move, but a one day bounce does not a recovery make. 

The Russell 2000 ($IWM) is the underperforming index, and while it did gain over 2% it stalled at its 200-day MA. Volume was well down on previous selling, reflecting a lack of conviction on the part of buyers. Technicals have been negative for a long while and there wasn't much of a improvement today.

The Nasdaq returned above its 50-day MA with a bullish cross in On-Balance-Volume despite not ranking as accumulation. I have redrawn a rising channel using the September and December swing lows as trend anchors.

Likewise, the S&P is also running in an upward channel which I have redrawn as done for the Nasdaq. As with the Nasdaq, there was a 'buy' trigger in On-Balance-Volume but  no accumulation for Tuesday's volume.  Unlike the Nasdaq, the index was able to initiate a bounce from the mid-line of stochastics.

For tomorrow, we will want to see some further upside or at least a consolidation near today's highs, before the inevitable retest of the new swing low. If this retest can occur in an orderly manner over the remainder of 2021 it will set things up nicely for 2022.  However, I'm not sure there is enough demand for this to happen in the Russell 2000, and this uncertainty will likely undermine any orderly recovery for the Nasdaq or S&P.  But, let's give price action a chance...

You've now read my opinion, next read Douglas' blog.

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Investments are held in a pension fund on a buy-and-hold strategy.