What has been remarkable about this correction is almost every day we get a modest gap up of 0.2-0.4%. Yes there has been a few exceptions but off the top of my head there have been either flat or gap up opens some 80% of the time during a period the market has sunk quite dramatically. The pattern that has been almost religious of late is for the gap up, and mid morning fade (usually by 10:30 AM) and then late day selloff. That looked par for the course yesterday but there was a big buy program between 3:40 and 3:50 PM that drove the S&P up 8 points. So at least there was some small change in character there.
Days like yesterday are misleading as the NY advance decline was near -1500 at the close (-2000 before that 3:40 buy program) yet the S&P was only down 0.2%. (Russell 2K worse of course) So it was a horrid breadth day despite what looked like a benign situation on the index (again that changed dramatically in 10 minute span in the 3:40 PM period).
By now everyone is aware of the oversold conditions in the market. Hence, many are trying to play an oversold bounce. I am not sure if the fact so many people are attempting to play it, is the reason it has not happened but some days it feels like it. On the flip side everyone also wants to see a big gap down morning that comes with heavy emotional selling – so that also doesn't seem to happen for the exact same reasons. All the oversold indicators mentioned this week continue to be at extreme levels. The bigger issue is after this bounce – whenever it does come – we have a plethora of broken charts. With housing / home improvement being raided this week there has now been no sector left untouched by the correction. Also yesterday was the sixth session below the 200 day moving average on the S&P 500 and the situation is much worse for the other indexes.
For those seeking the glory of the bounce, at minimum a new high over the previous day's high should be held at the close – that has not happened since the election. Tuesday was shaping up to be such a day until that sharp reversal in the afternoon. Yesterday's high came in around 1360, so a close above that level would be a modest step. Of course now there are all sorts of resistance levels overhead so prospects of something long lasting in duration seem low. The 200 day is up there in the low 1380s and 1404 has been a key level for all of 2012 – these would be some targets for the "fast and furious" face ripper rally everyone is waiting on. If instead markets continue to work off the steep drop by going sideways (via time rather than price) we have the exact same issue we mentioned coming into the week.
Next week is Thanksgiving week which traditionally is light volume, and a positive for the bulls. But you may remember last year's was the worst Thanksgiving week in a long time as the world grappled with European issues and before Draghi came up with the LTRO. But we're entering it this year coming off a big selloff so it will be interesting to see if bulls make a stand, as volume should dry up.
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