9-20-2015 Comments

I just posted this weeks watch lists. I always post short and long watch lists no matter what the market is doing. Judging how watch list stocks act can tell us a lot about the general market.

The buy switch is on, normally IBD would put the market in confirmed rally status but they left the status as Market Rally Under Pressure. The problem is the distribution days. Studies have shown that distribution in the first few days of a fledgling rally often leads to failure. In the chart below I mark distribution and stalling that occurred in the vicinity of two marked follow-through sized days. A FTD event is marked by price of a major index rising 1.25% or more on volume higher than the day before. Sometimes in nonvolatile conditions the threshold is reduced. The first FTD turned the buy switch on, the second FTD is a sign of additional strength.

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As Jerry has stated since the FTD that we should watch the market as it approaches the 200-day moving average. The day NASDAQ price penetrated the 200 day was a stall day with a close well below. The structure from the bottom day appears like a giant bear flag to me. If the market is to rally solidly it would appear that more time is needed to repair the damage done by the big flash crash.

I offer a second chart showing that it too 4 months to recover from the first Flash Crash in May 2010. The market could not achieve lift off until September 1. There were 4 follow-through days, the first three leading to failed rallies. There is no telling if we will see something similar this time around but perhaps during November and December holidays the market could mount a trade-able rally.

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