RSSMarket Bounce Nearing an End
By Jim Welsh | November 06, 2009 | 2:16 PM | 0 Comments
The payroll report was not good, no matter what spin is put on it.
Technically, the stock market sold off on higher volume after peaking in mid October, and has rallied on less volume. Between October 14 and November 2, the 21 day average of total volume rose 10.3%. Since November 2, volume has fallen 1%. The DJIA has retraced 83% of its decline from the mid October highs, while the S&P has recovered 61.8%. The broad market is lagging, as the Russell 2000 hasn't even bounced back by 50% of its sell off.
The spin meisters may be able to squeeze the shorts and run the DJIA to a new high, but the underlying technical weakness does not favor that.
At the recent lows the RSI on the 30 minute A/D line was 15, which is a very oversold short term reading. As of yesterday's close, the RSI was up to 78%. The 21 day net advance declines was -378 on October 8, which suggested the market was a bit oversold on an intermediate basis. As of yesterday's close it was back to +21. In sum, the market was very oversold on a short term basis, and modesty overdone on an intermediate time frame going into the lows on November 2. The rally since November 2 has completely alleviated the short oversold condition, and neutralized the intermediate on lower volume.
Given the underperformance by the Russell 2000, buy a 50% position in the ETF (NYSE: TWM) under $30.25, and use a move above 589.00 on the Russell 2000 as a stop. TWM is a double short on the Russell 2000.
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