That’s a fail. Breadth indicators had pushed deep into oversold territory yesterday and this should have produced a bounce. But it didn’t. I warned that the bounce might not materialize and that it could blow up in your face. It simply did not materialize. And I’m talking about the close not the rally that lasted until about noon.
What happened today is a much more ominous event than many will realize. Here’s why:
During the 2011 decline that began about this time last year and that lasted until October 3rd, breadth indicators went extremely oversold on 17 occasions, including October 3rd. Clearly the signal that was generated on October 3rd turned out to be a bona fide ‘buy’ signal, and just as clearly many of the other signals failed. Fer instance, on August 4th $SPX closed down 60pts on 5.5billion shares and breadth indicators dropped deep into oversold territory. The bounce that should have come just did not materialize and on August 8th $SPX dropped 79pts and closed at 1119.46. This last instance produced a tradeable bottom but the rally that followed only lasted a few days before sellers got the upper hand once again.
The bottom line is that when breadth indicators fail to give legitimate signals, then you need to expect this very same thing is going to happen in the future. This further confirms the change in market dynamics and that markets are in a down trend and this down trend is most likely just getting under way.
Watching from the cheap seats is better than being in the front row.
I’ll be traveling for the next several days and perhaps through the end of next week so it’s doubtful I’ll be psoting in the interim.
Be careful and never forget that money in the market is always at risk.