If you had logged onto your computer and observed the markets during the early hours of Tuesday morning, you would have seen a far bleaker picture than the one you would have seen some seven hours later.
The Dow and S&P played their famous game of cat-and-mouse with traders, penetrated the February lows, only to retreat and close back into familiar territory. It’s a bit like a Punch and Judy show where one of the puppets pops up and says “hellooo!” only to disappear and never be seen again.
Looking at the chart today (see above) only a few days later, could we also be seeing the tell-tale signs of a false downside breakout? And why should this be significant?
Over the last few weeks the major US and UK markets have had quite a beating given everything that was happening in the eurozone. The huge sell-offs have brought forth unprecedented over-sold readings (see video below) which have prompted speculation as to when we may finally reach a bottom.
The trader and best-selling author, Alexander Elder, writes in Sell and Sell Short that a false downside breakout is “one of the most bullish signals in technical analysis”. This scenario arises when the stock market breaks key support levels (e.g. the previous lows in February) and then changes its mind and closes above support again.
Given that the Dow rallied by nearly 3% on Thursday (although on moderate volume) and that it followed a recent spike in volume (usually a bullish signal), could we now be witnessing another Punch and Judy moment? It is certainly arguable that it could be an Elder-style false downside breakout. If so, Tuesday’s lows could well be a bottom on the stock market, at least for now. However, it is by no means indicative that we are going to suddenly return to bullish territory. Only time will tell.
For more detailed analysis, watch my short video market commentary below (allow a few seconds for the video to load):
Good post and this fill someone in on helped me alot in my college assignement. Thanks you on your information.
My pleasure and thanks for taking the time to write me your comment. Best wishes for your future. Cheers, Alessio
Good brief and this post helped me alot in my college assignement. Say thank you you seeking your information.
This is completely true, and I can say this because I myself made a lot of money during the downfall of 08. I starting investing around early 09 and invested in KFN, LVS, HUN, and GGP. All of these stocks were under 3 dollars or lower when I purchased them and I made a nice profit from all of them. My only regret was not holding them longer because my profits would have been much larger. From what I am hearing the crash is supposed to happen some time in October, and that’s when everyone will panic and sell providing the opportunity to buy cheap stocks. I was told back at the end of 09 that there would be a double dip, and it looks like it is almost hear. There is a little saying that I have come up during my years of trading and that is “Follow the Goldman road”. Good luck everyone and the opportunity to buy cheap stocks and make an easy profit is closer then you think.
Very insightful comment. Thanks you.