Recognize That? It's a Failed Bounce
By Rev Shark
RealMoney.com Contributor
5/14/2010 8:32 AM EDT
"There are two great rules of life; the one general and the other particular. The first is that everyone can, in the end, get what he wants, if he only tries. That is the general rule. The particular rule is that every individual is, more or less, an exception to the rule."
-- Samuel Butler
It is a little hard to believe, but we actually have what looks like a failed bounce in the major indices. The pattern of low-volume, V-shaped moves straight back up through resistance has been so consistent for so long that it is difficult to trust the charts, even though the bearish setup was exactly what you'd expect to see in the technical analysis (TA) rule book.
The reason that the standard TA rules are working this time is that the breakdown last week was so severe. You simply cannot expect the market to recover from a dip of that magnitude very easily. Many market players were caught by surprise, and the normal emotional reaction is to look to do some selling as stocks bounce back. If market players can reduce losses and escape those stocks that caused them worry and concern, then they are inclined to do so. Bounces after a big breakdown tend to fail because there are trapped holders who want out. Obviously, that psychology has been questionable, but this time it seems to apply.
The question now is whether the faltering bounce means that we end up filling the big gap that was created this past Monday morning. The conventional wisdom is that gaps, especially very big ones, tend to be filled.
The other well-known rule of technical analysis is that once a bounce fails, we tend to retest the lows. The low of last week is a bit murky because of the glitch in the system last Thursday that gave us the massive dip and recovery that lasted about an hour. If we exclude that and look to the Friday low instead, we have a target that happens to coincide pretty closely with the 200-day simple moving average of the S&P 500 right around 1,100.
Generally, the dip-buyers in this market have been too consistent and too aggressive to allow the market to go through any sort of retest of the lows. The dip-buying approach has been such a consistent winner since the low in March 2009 that you can bet the bulls will have their shopping lists ready and their fingers on the buy button as soon as we have the makings of another bounce.
Last week's bounce-buyers are feeling trapped with the turndown yesterday afternoon and the follow-through weakness this morning, but this bull market has bailed them out so often that I suspect that there are still some that are holding on tightly and are quite confident that we'll see the April highs again very soon.
The major thing to keep in mind at this point is that a failed bounce is a major change in market character. We haven't seen that happen very much over the past 14 months. If we don't come roaring back up pretty soon, there are going to be of folks who are not mentally prepared for it.
Overseas markets were almost all red, and we have gold and the dollar moving up sharply as investors look for safe havens. The primary driver this morning looks like renewed doubts about how easily Europe will deal with the sovereign debt issues. Some are starting to realize that bailouts actually come at a cost, especially when it looks like the list of those that need a bailout is growing.
Be careful out there. This market is acting quite differently than it did just a few months ago. It is better to err on the side of capital preservation when the charts look the way they do right now. We will likely have a good bounce again soon but don't be overly anticipatory. You can rack up some pretty good losses if you bottom fish too early.
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Ülespoole avanevad:
In reaction to strong earnings/guidance: TOPS +10.0%, IAAC +9.2% (light volume), ULTR +6.0% (thinly traded), CHLN +4.4% (light volume).
M&A news: BSMD +39.1% (BioSphere Medical signs agreement with Merit Medical to be acquired for $4.38/share).
Select gold/silver related stocks are ticking higher: NGD +3.1%, EGO +2.6%, GSS +2.3%, HL +2.1%, ABX +1.7%, NEM +1.5%, SLW +1.5%, HMY +1.4%, AU +1.3%, IAG +1.2%, GLD +1.2%, SLV +1.2%, GG +1.2%, GDX +1.1%, GFI +1.0%, KGC +1.0%.
Other news: HAIN +6.2% (Hain Celestial: Icahn reports 11.92% stake in HAIN, filed in an SC 13-D), HAUP +4.0% (continued momentum), NAT +2.5% (Cramer makes positive comments on MadMoney), YHOO +1.6% (Cramer makes positive comments on MadMoney).
Analyst comments: CBEH +4.9% (initiated with a Mkt Outperform at Rodman & Renshaw), APC +1.1% (upgraded to Overweight from Neutral at JP Morgan).
Allapoole avanevad:
In reaction to disappointing earnings/guidance: BBI -22.0%, COSI -11.2% (thinly traded; light volume), TSTC -8.5%, SVA -7.4%, CA -6.3% (also approves $500 mln common stock repurchase program), NVDA -5.8%, ICXT -3.3% (light volume), JWN -2.6%, SORL -1.2%.
M&A news: MMSI -4.1% (to acquire BioSphere Medical for $4.38/share; downgraded to Hold from Buy at Duncan Williams, downgraded to Neutral from Positive at Susquehanna).
Select financial related names trading lower on broad mkt weakness and reports that NY AG Cuomo subpoened several banks: AIB -5.3%, STD -5.0%, BBVA -4.5%, BCS -3.8%, PUK -3.7%, AIG -2.8%, ING -2.6%, NBG -2.5%, CS -2.4% (downgraded to Neutral from Buy at Rochdale), UBS -2.3% (downgraded to Neutral from Buy at Rochdale), MET -2.2%, HBC -2.1%, RBS -1.5%, DB -1.5%, C -1.5%, USB -1.4%, .
Select credit/debit card related names trading lower following Senate passage of amendment to limit interchange rate fees: V -7.6%, MA -7.4%, DFS -2.8%, COF -2.6%, AXP -2.0%...
Select metals/mining stocks trading lower: MT -4.3%, RTP -3.2%, BHP -1.9%, VALE -1.5%, .
Select oil/gas related names showing weakness: REP -2.7%, E -2.7%, TOT -2.6%, BP -2.4%, SU -2.2%, DVN -1.8%, OXY -1.4%, .
Select European drug names trading lower: AZN -1.8%, SNY -1.7%, GSK -1.4%.
A few solar names showing are seeing early weakness: STP -5.0%, SOLR -3.1%, LDK -2.4%.
Other news: BEE -7.3% (prices 66.0 mln common shares at $4.60/share), TKC -6.7% (trading ex dividend), AGNC -4.5% (announced its intention to offer 6 mln shares of common stock ), NS -3.6% (files for mixed securities shelf offering; announces public offering of 4.4 mln common units), GPOR -2.9% (announces public offering of 1.48 mln shares of common stock prices at $13.50; announces pending acquisition in the Niobrara Shale and Permian Basin Oi Plays for approx $15 mln), GTY -2.6% (announces pricing of offering of 4,500,000 shares of common stock at $22.00 ), RTK -2.5% (files for $50 mln common stock offering), POT -2.5% (still checking for anything specific), BIDU -1.9% (Cramer makes negative comments on MadMoney), VRUS -1.8% (prices 3.2 mln common shares at $29.00/share), AMT -0.8% (files debt securities shelf offering).
Analyst comments: CRUS -3.7% (downgraded to Buy from Strong Buy at Needham), NFLX -3.6% (downgraded to Hold from Buy at Citigroup, downgraded to Neutral from Buy at Merriman), EJ -2.0% (downgraded to Neutral from Buy at Goldman), WX -1.6% (light volume; downgraded to Neutral from Buy at Goldman).
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