On Tuesday, I said "Unless the market can take out the downtrend, a low in October still looks like the highest probability outcome." Of course, I was thinking ‘No way the market could actually stage a rally and take out the downtrend before the end of the month’. Well, yesterday the S&P and the Nasdaq both took out the downtrend line. The market still needs better breadth to indicate a bottom, but this was an impressive first step.
Ideally, we should see a retest of the breakout area, which implies a pull back in both indexes. However, you can make an argument that the S&P already tested the breakout point on Thursday morning and used that re-test as a launching pad higher.
In addition, several indicators have reached extreme oversold levels in the past weeks. The NASDAQ TICK 5 Day Moving Average indicator has actually managed to make a higher low, which is usually a good sign of a bottom. The NYSE TICK has yet to make a higher low but it did get to oversold levels.
Source: All charts courtesy Stockcharts.com
Overall, I still expect some choppy trading over the next week or two, especially in the NYSE, but it feels as if the market is trying to put in a bottom.
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