I wrote a few weeks ago about a candlestick pattern called an “island top” which is a bearish pattern. Today we completed the pattern, by opening and closing completely below the trading range of the previous month.
Things look pretty bearish, but it is completely news driven related to the Super Committee lack of ability to resolve their partisan differences. This blog is not designed for political commentary, so I will refrain from making comments on the topic, but know that IF (the big IF) we have a resolution, the markets should bounce quite aggressively. If we have no resolution, which I expect … then it is quite possible that we will head down to test the lows of October again.
The trip down won’t be straight. as we are due for a bounce shortly due to oversold indicators all pointing to a bounce. So, I would expect a bounce up … then possibly a large drop (again dependent on the news). My end of day analysis is showing that we should have a bounce this week, maybe even tomorrow, although my gut tells me tomorrow will be down again and the following day will start a multi-day bounce.
Right now, I will have little confidence in any bounce as the pessimism is quite high out there. I don’t expect many investors to get long in the market.
Thanksgiving week complicates things as the volume is usually quite low since many traders are taking time off … so we might have a reaction this week which will be completely reversed next week as the masses come back to work. Generally speaking the half day after Thanksgiving and the Monday after are very bullish for the markets on a seasonality basis.
All in all, this is a market that is best spent on the side lines waiting for resolution. Remember that sitting in cash is a position … you don’t have to be long or short … you can be in cash. Times of extraordinary risk and uncertainty are best spent waiting doing a hobby or researching while waiting for resolution.