Is This Just a Short-term Rebound or a Bottom?

Not so fast please! This is not the right question to ask. The conditions for a protracted decline are not in place yet despite dismal earnings, horrible technical signals, debt problems and geopolitical instability. Neither the conditions for a strong rebound are in place. I have said many times that this market is suitable for either very fast traders or buy-and-hold types who are true believers in its longer-term course. Trend-followers, swing traders, technical analysts, chartists and other players of the past are doomed.

The S&P 500 index rebounded 2% yesterday after reaching oversold levels. It closed more than 4 points above its 200-day simple moving average at 1,386.89. The 1,400 level will be a real challenge if this rebound continues. Just above that important resistance level lies the 30-day moving average resistance at 1,417 and then the 50-day moving average at 1,428, just below this month’s high.

No conditions for a bottom or a continuation of the decline are in place and whoever thinks that is a wishful thinker. This market will show no mercy to wishful thinkers. Roaring bears just out of their caves may get slaughtered once again. Weak bulls may be slaughtered as well by the forces that move the market that, in my humble opinion, do not rely on past earnings, technical signals, chart patterns or anything of that sort but just on their purchasing power and ability to create enough volatility to squeeze everyone out and profit. This is the name of the game and of course you will not learn that at school. Either you are believer in the longer-term ability of the stock market to rise and generate alpha or you become a fast trader. Anything in between is a sitting duck.

Disclosure: no relevant position at the time of this post and no plans to initiate any positions within the next 72 hours..

Charting program: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software. http://www.amibroker.com/”)

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