Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

The Morning Cup of Jo


Those silly teletubbies!


Trademark Pending

One good day and they all com-a-runnin'; gotta love it. Yesterday, on the "evil-black-box" (the TV), I must have heard 50 teletubbies (okay, maybe not 50) ask if the markets are at a bottom and if so is this a "V-Bottom?" Fascinating, to say the least. I love how they play on investors' emotions to sell advertisement.

I'm not going to take much of your time today, however; I do want to clear up a few points about bottoms. First of all I would like to point out that "V" patterns are unusual, rare and mostly unreliable when it comes to finding TRUE LT tops or bottoms technically. Nonetheless they do occur, but a large percentage of them get retested, which ends up creating a different technical pattern altogether.

Given the current technical environment we should start to focus on what a Longer-Term, technically healthy, bottom looks like. It's very simple. All you have to remember, or look for, is "The 4 B's and a D." (Bottom, Bounce, Base, Bottom & Divergence)

Let's take a look. Below is a daily graph of the SPX during the last bottom - March of 2003. You'll notice, at B1 (Bottom), the market put in its first reaction low while most of the momentum indicators were giving extremely oversold readings. At B2 & B3 (Bounce and Basing) the MACD crossed back over its average and the Fast Stochastic crossed the Slow Stochastic. (Positive right?) Maybe - this is where I've been talking about false-positives. Now onto B4 (Second Bottom), this bottom undercut the 1st while the momentum indicators didn't read as oversold as the first Bottom (Divergence). Another clear indication of the second bottom was the High Volume Reversal Day that took place. You may also notice how the down volume (Distribution) on the second bottom was less than the first (less sellers).

Immediately the market started to pick up speed and the MACD crossed its average for a second time while the Fast Stochastic crossed the Slow Stochastic. The RSI also showed divergence at the second bottom (greater relative strength at a lower low).

Now for the technical confirmation signals...

The first came when the SPX retested the first BO (breakout) and the 50-DMA. The second came as it busted through the ST downtrend and the 50-DMA started heading back north. Three days later it retested the Floors & Ceilings. The final confirmation was the Bowtie. This is where the 3 major moving averages (50, 150, 200) cross at the same point - extremely bullish.

WONDA Copyright 2004 William O'Neil + Co.,Inc. All rights reserved

Now let's look at today's graph of the SPX.

The ST & IT trends have been broken. The 50-DMA has started to head south for the first time since the last graph and all of the momentum indicators are at extreme readings. Bottom? You tell me.

Personally what I'd like to see is the "First" B - a reaction low.

WONDA Copyright 2004 William O'Neil + Co., Inc. All rights reserved

I just want to state a few facts before leaving you today...

The more they talk about, on the "evil-black-box," possible turning points in the market - human nature dictates - the more you'll watch. The more people that watch, the better their ratings. The better the ratings, the more money they make.

Educate yourself and you'll never have to rely on anyone else's opinion.

I hope this helps !

Until next time...


< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely= reflects the analysis of or opinion about the performance of securities an= d financial markets by the writers whose articles appear on the site. The v= iews expressed by the writers are not necessarily the views of Minyanville = Media, Inc. or members of its management. Nothing contained on the website = is intended to constitute a recommendation or advice addressed to an indivi= dual investor or category of investors to purchase, sell or hold any securi= ty, or to take any action with respect to the prospective movement of the s= ecurities markets or to solicit the purchase or sale of any security. Any i= nvestment decisions must be made by the reader either individually or in co= nsultation with his or her investment professional. Minyanville writers and= staff may trade or hold positions in securities that are discussed in arti= cles appearing on the website. Writers of articles are required to disclose= whether they have a position in any stock or fund discussed in an article,= but are not permitted to disclose the size or direction of the position. N= othing on this website is intended to solicit business of any kind for a wr= iter's business or fund. Minyanville management and staff as well as co= ntributing writers will not respond to emails or other communications reque= sting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.



Featured Videos