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Stock Markets in No Man's Land

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Still too early to gauge secular low.

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What a wild day on stock markets yesterday! At one stage, the Dow Jones Industrial Average plunged to below 8000 to a 5-year intraday low, but staged a spectacular rally late in the session to close 553 points (6.6%) up on the day. The S&P 500 moved in tandem to finish the day 59 points (6.9%) higher.

I referred to the characteristics of the so-called descending triangle on the S&P 500 in a post of 2 days ago (Markets on the Knife's Edge), mentioning that a reversal to the upside often leads to a strong countertrend rally. A move in that direction occurred yesterday on the highest volume in a month. Although one shouldn't get too fired up about a one-day turnaround, the price and volume action was quite impressive, with the October 27th lows (8176 on the Dow and 849 on the S&P 500) still intact.

The following daily graph summarizes the market action:


Click to enlarge


Importantly, the intraday lows of October 10th, when the NYSE (red line in the graph below) made an "internal low," with 92.7% of stocks hitting new lows (blue area), have also not yet been violated.


Click to enlarge


A further positive for the bulls is that, according to Jeffrey Hirsch (Stock Trader's Almanac), the Dow has been up 12 out of the last 14 years during the week before Thanksgiving.

With the likelihood of further short-term gains a possibility (especially if the major indices record upside reversals on the weekly data by the end of today), it remains too early to tell whether a secular low has been recorded.
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No positions in stocks mentioned.
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