Click on above image to enlarge & see 8/1/10 for how to interpret the top 3 charts
While the fed statement was the news of the day, if you don't feel like scanning the internet for the word for word it can be summarized with more bailout is coming starting with buying US Treasuries again. The most interesting thing about today's trading is what happened in the first 30 minutes of trading this morning. There was truly a purge of all stocks like we only see 4 or 5 times each year. Everything was sold and in huge quantities. By 9am the advanced/decline number had reached the -4500 number. Anytime it gets so bad that we get into the negative 4500 to negative 5500 area, historically there is a 90% chance that it will mark the turning point of the selling leading up to that and be the start of a new push upward. Recent examples are the -5500 reading we got at 230pm 6/4/10 which market the beginning of 6/7 thru 6/17 market run up. Then on 6/29/10 we punched -5500 followed by a -4700 on 7/1/10 with these two low markers triggering the 7/1 thru 7/13 market run up.
Granted today's low reading at -4500 was just barely into that grossly oversold area of -4500 to -5500. Often we get 2 days of deep purge either back to back or a day or two apart and then within a day or two a 2-3 week run up in the market begins. Whether today's purge was enough or we need another day of deep purge, we will have to see, but market swings are all about extremes and we always over do the selling to the downside and over do the buying to the upside. For a week or so every move up has been slapped down with sellers. This normally gets worse, as it has, until finally the selling pressure is relieved with an all out purge of all stocks and then the path of less resistance switches over to being to the upside. This really wasn't quite a low enough number for a single purge, normally a second purge day would be needed in the next couple of days. Yet time is really of the essence here, and the bailout team can not let a purge marker point get carried away and start panic. We will have to see which way it pans out, but the 90% likeliness that this purge becomes the marker are good odds.
In the charts above, chart 1 row 2, we see that the red green 5/10 bounce point was not damaged today. In the volume bars directly below it we see a huge volume surge today while most of the volume was selling it is actually bullish. In chart 2 row 2, we printed another hammer reversal candle also bullish. In chart 3 row 2, I added the center line of the bear channel for the first time to show that the big opening market smackdowns are being bailed out at the black center line of the red channel which is also bullish. In chart 1 row 3, we see the OBV blue line has fallen back even lower while today's intraday low on the price above is actually higher than the previous intraday low creating an even bigger and more powerful OBV divergence situation which is also very bullish. You can also see that they are maintaining an uphill trendline (green line) of these market smackdown bottoms. In chart 2 row 3, they made sure that we didn't even get close to the 108 line this morning just in case we touched it & then slipped on thru which would have been a disaster.
I personally hope they actually do a second, very controlled purge on down toward the -5500 area in the next couple of days to really release the built up selling pressure to the point that we will actually have a smooth and steady 2-3 week rally. We will see...
Alan
