Day two of the expected bounce and so far so good. Might last 2-3 days more. Might last a year. I’m still not convinced it’s safe to add to my current long positions or to initiate any new long positions, but I’m starting to wonder if maybe I should change that.
The big unknowns for me are the two back to back 90% down days. Nothing like that happened during the 2008-2009 decline and it may be, maybe, that everyone who wanted out has now gotten out and so the bulk of the selling is behind us. While I don’t really believe that, it is something to consider. Should $SPX drop back below 1100 in the next few days, then that would be that.
I’m paying very close attention to IWM and especially the 60min charts. Little known fact about IWM is that when it’s ready to rally you can watch the RSI on the 60min charts rise above and stay above 70 for several days. Currently, whenever the RSI for IWM gets near or rises above 70, it gets sold. So to convince me that things are changing, I need to see IWM continue to rally and for the RSI on the 60min chart to rise above 70 and then stay there.
This chart shows just what happened when the RSI on the 60 min chart rose above 70 a few days back. It also shows what happened Tuesday when the RSI dipped below 30.
Chart courtesy of FreeStockCharts.com
Next is the daily IWM chart using the 5/10 Method. And it’s deja vu all over again because it wasn’t that many days ago when I put up a chart of IWM showing the first phase of buy signal, which never did get confirmed. We’re there again. This time we’ve got a positive divergence in the stochastics and a nice W pattern, as well. I wouldn’t get too excited should IWM break that down trend line, but it would still be a positive and could be the beginning of an up trend leg. Just have to see.
Chart courtesy of StockCharts.com
That’s it. Don’t get your expectations up too high because the Big Boyz who bought the close on Tuesday could decide to sell at any moment.