The same group of rudimentary-minded analysts of short-term movements in the markets are declaring today as an obvious end for the run we have experienced since the October lows. Citing among other things, the various sentiment measures such as AAII and the put/call ratio that have been consistently keeping investors off balance for the entirety of this rally. And then there is the obvious technical perfection of a bearish kind that came with today's steady decline into the close. It is as if the market is going out of its way to sell the bearish theme to the gaggle of price driven investors that occupy the current market.
Why is the market so eagerly selling the message with today's technical debacle if its intentions are as nefarious as some think? Isn't the intention of the market to deceive through slight of hand as opposed to warn through blatant acts of violence against investors?
This is the classic example of the obvious trade being the wrong trade in the market.
The depth of my argument doesn't end there, however. Here is the technical picture from an alternative point of view:
1. I took the time to look at single bars in the Nasdaq Composite where the open was the high for the day, followed by a close at the lows for the day that exceeded a loss of 1.5% versus the previous close, as we experienced today. I excluded gap downs, as these are typically event driven as opposed to momentum driven declines. There have only been four prior incidences in 2013 prior to today. In all of the incidences to date, the market bottomed no more than 4 days after the blatantly bearish bar formed. Here is a look at the chart showing each example:
click chart to enlarge
Nasdaq Composite
2. In yesterday's post, I touched on the fact that the Nasdaq 100 had not even come close to touching the trajectory in an attempt to retest. While this was very bullish behavior, the fact that we caved in today doesn't negate the bullish scenario at all. In fact, the market is now taking part in a standard retest of an important trajectory before moving higher. I would have preferred a continued consolidation followed by a move higher. This, however, still fulfills the bullish requirements for continuation to the upside:
Nasdaq 100
3. The Russell has been leading the march down over the past several days. Take a close look as to what is dead ahead. The bottom end of the channel that has been supporting the average since April. Low probability event that this channel is invalidated anytime in Q4 given the seasonal advantage of small caps as the market enters January.
Russell 2000
