Bungee markets continue. Dow faints of dizziness.

Posted on May 25, 2010 by in Letters

2010-05-25-induOnce again today looks like a reversal day.  The Dow was down 290 points in the first five or ten minutes and spent the rest of the day clawing its way back to finish 22.82 down.    We have called these bungee markets and the term is vividly descriptive.  The trading day two days ago looked like a bungee reversal day– evidently wasn’t.

The horizontal line is the previous important low, not the stop, which is down a bit.  The market was definitely probing for stops to run the bulls.  Worse than Pamplona.  We remind you that our stops are close only, not market if touched.

We are largely long in our personal portfolios.  We are also concerned about the broken trend line.  If the present sell off resolves itself we can see the bull market continuing. So it remains to be seen if the present down wave is the only consequence of the broken trendline.  Seems like a pretty painful consequence to us.   If the stop is taken out we will go short.

If the market shapes up over the next few days we will look at this situation as a buying opportunity.  That is pretty clearly what fast traders did today.

The farthermost right down sloping line is the conservative investor’s reentry signal line.

This downwave is now 22 trading days long and from top to bottom (range, not close) it is down 13.18%.  So far this is a corrective downwave in a bull market.

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