08/04/2011 Market Outlook (Sell the Bounce?)

SHORT-TERM: EXPECT REBOUND SOON, BUT REBOUND, IF ANY, IS SELL

Thee conclusions:

1. Rebound, as early as tomorrow, no later than 3 trading days. The rebound size might not be small.
2. Rebound, if any, is sell.
3. Ironically, a red close tomorrow is actually good for bulls.

Everyone knows the market is oversold, therefore a rebound is just a matter of time. The question is when? My guess is tomorrow the earliest or no later than 3 trading days. The chart below is my main witness. NYSE Down Volume to NYSE Up Volume Ratio >= 35, seems a tradable bottom within 3 trading days.

Listed below are all the other heavy weight evidences arguing for a rebound. They’re no ordinary signals therefore are more reliable.

• Usually a huge rebound after 3 Major Distribution Days. This even worked in year 2008, perhaps at that time was the only chart that worked, so very reliable.

• NYMO extremely oversold.

• T2116, Percent of NYSE stocks 2 std dev above MA(40).

• Too many Sentimentrader Indicators are arguing for a rebound.

• As mentioned in today’s Trading Signals, VIX rose 18%+ means 77% chances a green day tomorrow.

Why, rebound if any, is sell? I’ve been blah blah this for quite a time. It’s the law of inertia, NYMO new low means the downward movements are still accelerating, therefore very hard to reverse immediately. A visible NYMO positive divergence implies, a sizeable rebound then lower low while at the same time no new low on NYMO.

The chart below is another reason for sell, if rebound right away tomorrow, a SPX lower close is almost guaranteed.

Why is a red tomorrow good for bulls? See chart below, a red Non Farm Payroll day tomorrow usually means a reversal which in the current case should mean a reverse up.

The last but not the least, a reminder, a typical Non Farm Payroll day intraday pattern is open high go lower or open low go higher. The chart below is from Bespoke.

INTERMEDIATE-TERM: IN DOWNTREND, HEAD AND SHOULDERS TOP, TARGETING SEP 2010 LOWS

See 08/03 Market Outlook for more details.

SEASONALITY: BEARISH FIRST 9 TRADING DAYS OF AUGUST

See 07/29 Market Outlook for more details. Also please see 07/29 Market Outlook for day to day August seasonality chart.

ACTIVE BULLISH OUTLOOKS:

• 08/03 Market Outlook: A tradable bottom might be in, targeting MA(200) above. Failed!

ACTIVE BEARISH OUTLOOKS:

• 08/01 Market Outlook: Rebound, if any, is sell. Also so 08/02 Market Outlook for more evidences.

SUMMARY OF SIGNALS FOR MY  PUBLIC CHART LIST: 

TREND MOMENTUM COMMENT Long-term 2 of 2 BUY Intermediate 5 of 5 SELL 4 of 5 NEUTRAL Cobra Impulse in SELL mode; Non-Stop in SELL mode. Short-term DOWN 3 of 6 *OVERSOLD

TREND COMMENT QQQ & Weekly UP 4.1.1 Nasdaq 100 Index (Weekly): SOX lags, be careful. IWM & Weekly DOWN *Head and Shoulders Top, targeting Nov 2010 lows. SSEC & Weekly DOWN   EEM & Weekly UP   XIU & Weekly DOWN *1.5.9 TSE McClellan Oscillator: Oversold. DAX & Weekly DOWN   TLT & Weekly UP   UUP & Weekly DOWN GLD & Weekly UP   USO & Weekly UP   XLE & Weekly UP   XLF & Weekly DOWN IYR & Weekly DOWN 4.4.3 Real Estate iShares (IYR Weekly): XHB lags, be careful. XLB & Weekly DOWN *Head and Shoulders Top, targeting Nov 2010 lows.

* = New update; Blue Text = Link to a chart in my public chart list. UP = Intermediate-term uptrend. Set when weekly buy signal is triggered. DOWN = Intermediate-term downtrend. Set when weekly sell signal is triggered.