Tuesday, November 1, 2011

mixed signals

A pretty nasty day today with a lot of volatility.  Good news is that the low of the day was put in within the first few minutes of trading, but the bad news is that it basically closed at the same level (higher, but at the lows of the day nonetheless).  I was hoping to see a large drive in prices back up and that it would hold into the close, but that obviously did not happen.  In the middle of the day, we had a nice push up, but selling forces overpowered and finished the day off poorly.

My end of day analysis shows strength in volume, so we might be a temporary bottom.  I can't say with certainty since the last two days were so negative it really sends mixed signals.

It is also nice to see that we are no longer overbought, which really means nothing more than we should no longer expect a correction in the coming days ... duhhhhh ... we are already in one!  But with this obvious comment, it is an important criteria to accomplish before we can move higher.  When the market moves too fast too quickly in a certain direction, we need time (or price) to slow down the change in price.

The overbought/oversold concept is based on taking price movement and comparing it to historical information and particularly very recent price movement to see if the ascent (or descent) in price is happening too quickly based on the norm.  An overbought/oversold status can be corrected by price or time ... in other words if price rises quickly and then sits for a few days without going higher OR lower ... this can relieve the overbought pressure and then prices can continue moving.

I think we will know at the open tomorrow morning whether we can corrected enough and can move higher.  If we open with a gap up and we are able to hold those gains and close above today's close my assumption would be that we will be able to continue higher from here.  But, if we open down again, my assumption will be that we have more downside to endure.

If this is just a healthy correction, then we are fairly close to the bottom (if not at the bottom), but with this being such a news driven market ... who knows what the next few days will give us.  For now, the easy money in the latest trend has been made and we have to sit back and wait a bit for more clarity before continuing.

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