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Five Things You Need to Know: If This Is a Low, It May Hurt You


Short-term bullish, for a trade...


Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:

This is a low.
But it wont hurt you.
When youre alone,
It will be there with you,
Finding ways to stay solo.

Blur, "This is a Low"

Clearly, they are very wrong about that. While it may, in fact, be a low, it can definitely hurt you. Of course, catching a low requires an affinity for flying solo. You will be alone, or at least far and away in the minority, at any major turn... by definition.

It was only a week ago I was sitting here trying to figure out how close we were to a low. Are we there yet? Are we there yet? That was the chorus, the chant, the mantra percolating up and out from stock traders and investors. It's understandable. After all, the S&P 500 (SPX), (SPX) is now down 47% for the year, it's worst yearly loss ever.

On October 16 I made the case (Five Things You Need to Know: The Case Against the Low) that we had not yet seen the lows for the year. That prediction was based on my interpretation of some DeMark price exhaustion technique indicators as well as the state of credit markets. I viewed the 777 retracement level for the S&P 500 as the likely target.

So, here we are, that target was met and exceeded today. So is this it? Is the low finally in for the year?

Where are we today?

Warning: This following section is somewhat technical, skip down to Conclusion for the conclusion.

Brief Refresher:

This particular pattern we are discussing is an expression called TD-Sequential, and it consists of two components, a setup and a countdown period. Numerically, the setup is complete at 9, the countdown at 13. These patterns help identify potential selling or buying exhaustion points. They are probabilistic and dynamic, because markets themselves are probabilistic and dynamic.

Now, what do these 9s and 13s really mean? Because we are looking for a market low, let's focus on TD-Sequential Buy Setup and TD-Sequential Buy Countdown.

The TD-Sequential Buy Setup consists of 9 consecutive closes that are lower than the close four price bars earlier. The criteria for "perfecting" the sell setup is that the LOW of price bar 8 OR 9 be below the low of BOTH bars 6 AND 7.

Once a Buy Setup is in place, the TD-Sequential Buy Countdown can then begin. The difference between Buy Setup and Buy Countdown is that Buy Setup compares the current bar's close with the close of the bar four bars earlier, while Buy Countdown compares the current bar's close with the LOW two price bars earlier. Also, unlike Buy Setup, Buy Countdown need not occur on CONSECUTIVE bars.

That is the quick and dirty overview of TD-Sequential.

So here we are. On a daily basis for the S&P 500 we have in place a TD Sequential buy signal and a subsequent Buy Setup that has been perfected. For the Nasdaq-100 we have in place a TD-Sequential buy signal, a perfected buy setup and a TD-Combo buy signal that registered today (Thursday).

Looking at weekly charts of the S&P 500 and the Nasdaq 100, we have perfected buy setups in place for both the S&P 500 and Nasdaq-100. While the S&P 500 has not broken through the 777 TD-Absolute retracement level in a "qualified sense" (in other words, there are rules for breaking those levels that have not been met), the Nasdaq-100 has broken though its level and "qualified" the break. That is not necessarily today's business, but it unfortunately means that any low we may be near that is just that, a low, and not a bottom.

My Conclusion: The accumulation of exhaustion signs registering on the daily charts indicates we have a high probabiity of being at a tradable low here. In other words, I am short-term bullish, for a trade, but remain long-term bearish for investor money. Yes, it feels wrong. It makes little to no fundamental sense. But at a significant low, that is precisely how it is supposed to feel. We shall see. What would change my mind? A qualified break of the 777 level.

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