Thursday, October 16, 2008

Nothing Definitive, But Some Encouraging Signs From My Scans

Quick post after doing my scans. I'm still not really finding any great setups - that will take a while in my opinion as stocks need to base for several months before the damage done over the past few weeks can be healed. That being said, my Telechart numbers look a lot better today than they did on Monday, which is one main reason I am cautiously optimistic that we could move higher from here. Let's look at the numbers(by the way, these are all the early results and could change slightly after Telechart does their final update).

#1) Breakouts - There were 1485 breakouts (4% or higher) today on higher volume. This is the type of number I expected on the record-breaking session Monday, when there were only 547. That low number worried me Monday and it turned out to indeed be a sign of trouble. Today is a much better sign. Also, in comparison to yesterday, the buying interest was higher today (net positive of 1202 - 1485 breakouts vs. 283 breakdowns) than the selling interest was yesterday (net negative of 1025 - 38 breakouts vs. 1063 breakdowns). Considering that the losses yesterday were almost twice as big as the gains today, I have to think it is bullish there was more buying interest today. This is the main data point I was looking for - I hope all these numbers make sense.

#2) I had a large increase in the number of oversold stocks in my scans today, as well as an increase in the number of stocks down 50% or more in a month. That in my mind is bullish, for the more these get stretched, the more powerful a bounce can be.

#3) The VIX had a much more traditional reversal today (high of 81 and closed at its lows of 67) that is more like one I am used to seeing at the start of a bullish move in the market. Last Friday, the VIX still closed in the upper half of its range.

#4) Volume did increase today on the up move and technically, the selling of the previous two days did occur on lower volume. I don't how much technicals matter in a market like this, but it is something to consider.

I am not naive enough to think that these data points guarantee us a big rally here, but I think they help. I don't know that I will get extra aggressive yet on the long side, but if we open higher and can hold the open tomorrow, I may look to slowly add more exposure to the long side via more ultra ETF's. I will continue to use stops because in no way is it certain that today's reversal will be the one that matters. I think there is a good chance it is, but we have to see. This is the craziest market possibly in history and in an environment like this, it is quite important to remember the market can do whatever the heck it wants to do, and you must respect that.

The charts I am watching haven't changed from my last list posted. Most are just the ETF's.

Good luck Friday. Let's hope today was the start of a move higher that we can make some money from. Take care.

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