Monday, May 23, 2011

Expecting a Bounce Soon

For various reasons, I am expecting a bounce attempt soon.  Note I am not saying a bottom, as I think this correction could last longer than the brief ones we've seen in March and April.  We might be at the start of a move like last summer where we got a choppy correction that took the market down about 18% from top to bottom.   I can't see a correction deeper than that because honestly, I don't think the government will allow it. A deeper correction (basically a new big bear market) is in my opinion dependent on a true bottom occuring in the U.S. dollar, and again, I believe the government and Fed will make any and every effort to prevent that from happening.

Short-term, here's what I see....

#1)  The dollar has had a nice run but is now coming up against important resistance levels.

#2)  An oversold/overbought indicator using RSI(2) I developed using Telechart was showing a reading below -2500 today.   No indicator is perfect, but this has worked pretty well over the past nine or so months in determining spots were bounces occur.

Charts from Telechart, Courtesy of Worden Brothers, Inc.

#3)  Commodities have stabilized somewhat even with the dollar rising.   Gold has been higher each of the past two sessions.  Silver has had four flat sessions.  Oil seems to be holding support around $96.   I am expecting a bounce attempt in these names as well.  Not a bottom - let's be clear - but a bounce will not surprise.

I still have two shorts but if I am lucky to have a chance to cover tomorrow morning on a move lower I will.   I will likely then look to put on a few longs, most likely via ETFs as I don't see many individual charts worth much right now.   In my opinion, if it occurs this will be a short-term bounce only (2-4 days) so play it accordingly and respect your stops, because if we don't bounce soon, then perhaps we are indeed entering bear market times again and things will get really, really ugly.  Good luck Tuesday.


Anonymous said...

Nice job Mac - congrats on those short plays from the weekend - I think you're right about the short term bounce too - Lots of names showing strength today in the midst of all the weakness.

Anonymous said...

Mac: Good point on watching UUP. Another interesting tell will be JJC. If there is a rebound, JJC should have formidable resistance around 53.5 to 54. Thank you! Steve Clem

argentum tulipa said...

Anyone else think the commodity cycle is (nearly) complete?

Mac said...

Thank you Anon and Steve.

Don't know if commodity cycle is complete - certainly will get hit if world goes into another recession which is a possibility.