David Nichols Morning Report
Enviado: 4/2/2003 15:29TUESDAY a.m.
February 4, 2003
Another nothing day, for the bullish case
by David Nichols
Yesterday was a relatively uneventful day in the markets. Yet if you're bullish, that's not what you want to be seeing after a decline. Drifty sideways movement after a big drop is usually an indication that the markets are pausing in their descent-- as if on a ledge, halfway down the cliff -- before plunging the rest of the way.
A close-up look at the daily candlestick chart of the S&P 500 shows how the big breakdown candle from Friday, Jan. 24 hasn't been breached in any serious way by the next six candles.
I don't know how anyone can look at that chart and interpret it bullishly. There hasn't been any real upside energy -- all the markets can manage is to churn underneath the breakdown point. This churning is storing up potential energy, winding up the mechanisms of the market for another leg down.
Another way to think of it is that the last week or so has been the "advance phase" to counter the sharp decline phase from the top on January 15th. This has been the window of opportunity for the markets to really get back some of the decline, and perhaps turn around the whole thing into an uptrend.
One of the most important ways to gauge a mid-term trend is to look at the relative strength of each advance phase and decline phase. Theoretically, in a mid-term decline, the short-term decline phases should be swift and brutal, and the short-term advance phases should be weaker counter-moves.
This is exactly what we're seeing now.
The short-term advance is still clinging to life. But it's running out of time. When the next short-term decline phase gets underway -- likely sometime over the next few days, if not the next few hours -- the markets should accelerate to the downside.
February 4, 2003
Another nothing day, for the bullish case
by David Nichols
Yesterday was a relatively uneventful day in the markets. Yet if you're bullish, that's not what you want to be seeing after a decline. Drifty sideways movement after a big drop is usually an indication that the markets are pausing in their descent-- as if on a ledge, halfway down the cliff -- before plunging the rest of the way.
A close-up look at the daily candlestick chart of the S&P 500 shows how the big breakdown candle from Friday, Jan. 24 hasn't been breached in any serious way by the next six candles.
I don't know how anyone can look at that chart and interpret it bullishly. There hasn't been any real upside energy -- all the markets can manage is to churn underneath the breakdown point. This churning is storing up potential energy, winding up the mechanisms of the market for another leg down.
Another way to think of it is that the last week or so has been the "advance phase" to counter the sharp decline phase from the top on January 15th. This has been the window of opportunity for the markets to really get back some of the decline, and perhaps turn around the whole thing into an uptrend.
One of the most important ways to gauge a mid-term trend is to look at the relative strength of each advance phase and decline phase. Theoretically, in a mid-term decline, the short-term decline phases should be swift and brutal, and the short-term advance phases should be weaker counter-moves.
This is exactly what we're seeing now.
The short-term advance is still clinging to life. But it's running out of time. When the next short-term decline phase gets underway -- likely sometime over the next few days, if not the next few hours -- the markets should accelerate to the downside.