Rallies like yesterday’s embolden bulls and chasten bears.

The question of the day is: Was this merely
a vicious bounce in a longer downtrend, or was this the start of
something new and wonderful?

On CNBC, I watched the Bulls pound their chests, while the
bears ate crow. But history shows that a full celebration after the recent technical damage is premature. While it’s foolhardy
to ignore a day where the Dow rockets up 200 points, it’s just as
dangerous to close your eyes and plunge in blindly.

Over a year ago, I discussed a methodology for determining whether these surges were one day wonders or true bottoms. It is via a statistical study done by William O’Neil, the founder of IBD.

To quote that column from last year:

"O’Neil found that he could separate the "one-day wonders" from the important turning points by finding evidence that large institutions had regained their appetites for equities. While there are no guarantees, this method has a very respectable track record.

Historically, that would be evidenced by a significant follow-through rally four to nine days after the first big move up after a longer downturn. Requirements include the major indices rallying 1% to 2%, and on greater-than-average volume, in that five-day window. It opens next Monday."

We are now in a "confirmation window" which runs about 10 days.

Of course, a market rally does not make all of the prior concerns simply disappear. Oil prices, inflation, slowing GDP, declining housing, waning earnings momentum and Middle East War(s) do not merely go away because the animal spirits were in full throat for one day.

Stay tuned . . .

>

Source:
One-Day Wonder or Key Turning Point?
RealMoney.com, 4/22/2005 9:17 AM EDT

http://www.thestreet.com/p/rmoney/barryritholtz/10219249.html

Category: Investing, Markets, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

68 Responses to “One Day Wonders or True Bottom?”

  1. Bynocerus says:

    I’d add that we’ve already had two of those confirmation days during this downturn, only to have them negated by lower lows. The beauty of O’Neil’s system, as I see it, is that by trading stocks instead of the indices, even if the confirmation is negated you can still make money before cashing out.

  2. Craig says:

    Or bail before a significant loss. O’Neil’s system also uses 6-9% stop losses, just in case.

    Highly recommend his book and of course the online paper, IBD.

  3. BDG123 says:

    Many things happened yesterday which were very negative. Ain’t no bottom in my book, at least yet. That said, there was a ton of underlying buying in tech on Tuesday. Apple’s move up is off of a significant area of support which might launch a short term rally. But, what we have to a certain extent in Apple is too many traders chasing too few opportunities. 15% move up in pre-market is not a sign of capitulation but a sign of desperation by traders looking for something to work.

    While I worry about a weakening dollar and Paulson’s potential role being named as TS to help guide the dollar down slowly according to some other comments, it looks like the buck doens’t want to oblige. I’d laugh my ass off if the perma bears had to choke down a rising dollar due to international risk. Looks like a potential reverse head and shoulders bottom potentially building over the last few years. Jut have to wait and see.

  4. JPM says:

    sell sell sell short short short !!!!!!!

  5. ss says:

    Per the astute Sentimentrader:
    yesterday’s trading was rare — that we had 10x more up volume than down volume. This has happened 3 times in 30 days, with no counterbalancing 1/10 up/down volume. In the last 44 years, this has happened only 3 times…each time we had a 10% return over the next 6 months. They also (earlier in the week) share some statistics that showed the NDX the most oversold in the last decade. 9 out of 9 times when it got this oversold we had a 3 MONTH RALLY OV OVER 30 %.

    NOICE!

  6. Byno,

    What are the 2 confirmation days you are referring to?

  7. Bearish says:

    Serious question to you technical traders: I understand that trading patterns of months, or years past can match today and help predict markets in the short term — say a few days out. But how can you guys honestly claim that prior trading patterns are useful when we look months out?

    Specifically, we are now facing the big center of the hurricane season, we have geopolitical risks, and we have a confused Fed chairman. Can prior trading patterns really help us predict the near future?

  8. ss says:

    History rhymes, as Mark Twain said. No one metric (technical, quant, sentiment, geopolitical) can “predict” an outcome…but statistically similar suituations are an excellent guide…a prior raodmap of how psychology effected trading. Aren’t there consistant traits of market bottoms and market tops?

  9. Sentiment trader reaches a different conclusion than does the great Paul Desmond, who notes:

    “Wednesday’s trading qualified as a 90% Upside Day. The last two 90% Upside days, June 15th and June 28th, each resulted in rallies lasting another four days. Those rallies proved to be good opportunities to sell stocks and to identify short sale candidates. Until we see some significant signs of capitulation on the part of sellers, the rallies are likely to be short-lived.”

    I’m in between — I am skeptical, but willing to be converted by a confirmation day.

  10. ss says:

    Absolutely correct Barry. And that is the concensus view — skeptical. Look at today’s AAII sentiment numbers — 58% expecting a down market in 6 months. It hasn’t been that low since Feb ’03, and Oct ’90. (again thanks to sentimentrader)

    Another rhyme in this song?

    …all in all, it’s just another brick in the Wall…

  11. Bynocerus says:

    Barry,

    Upon further review, there were actually THREE confirmation days. The first signal came June 8 when the market went down over 2% then reversed to close up for the day. The first confirmation came 5 days later on June 15, followed by another on June 21 and another on June 29. If one is playing by O’Neil’s rules, you should have covered on July 12.

  12. Bob A says:

    …and it’s August, not October

  13. khare says:

    Sentiment Trader’s research is inaccurate. When you apply this methodology to the S&P & Dow you get absolutely inconsistent results.

    We do need to shake the bearishness though.

  14. Oldsoothsayer says:

    Oh Jove!

    Is this a nightmare or people are just so blinded that they do not see the obvious?

    Let’s take the S&P 500 as a study.

    THE BIG PICTURE:
    (long term – 2 Years)

    In 45 trading days from now, the market will start a long and steady decline to 590. (from a 1236 high in May).
    The same 50% off we did experienced in 2000-2003.

    In this 2 years process, the possibility of a 20-25% crash is very probable and should occur in the next six months (but not before two months).

    MID TERM
    (Two months – 45 trading days)

    The SPX should retrace to the 1280-1295 limit in the next 15 days, then another plunge to the 1250 limit and back upto 1275-1280.
    THEN the “big move” (like Livermore would say) will start.
    1210 as a first target .
    If prices go below that sharply, fasten your seat belt folks! This would be the first occurence of a crash!

    Now, if not!, it will retrace back up, then down again with another crash in mind etc.
    Usual market behavior.

    The thing is, crash is at 950 limit.
    The closer to that limit we will get, the less probable the crash will be.

    Therefore the highest probability of a major crash is in 45 trading days from now; which is: OCTOBER.
    YEP!

  15. ss says:

    It’s not research…it’s statistics. You use statistics to form a researched opinion.

  16. Craig H says:

    Most of the homebuilder puts I’ve been holding for the past two months are right back to where they were before yesterday’s irrational exuberance. The three bears and their extended families have moved into the housing sector and Goldilocks isn’t coming back anytime soon – unless she wants to be eaten. That still has implications for a whole bunch of other sectors from lenders to lumber yards to bulldozer makers.

  17. BDG123 says:

    I did a little digging around Sentimentrader after Mark mentioned it a while back. It’s quite a nice service but I’m not sure how one uses it to trade. It’s sort of like reading the Wall Street Journal. It’s nice but I can’t trade on it. Or, at least, I wouldn’t.

    You know, the other day when I was contemplating the future of mankind in my daily love affair with the Porcelain God I had an epiphany. That epiphany was that the stock market would rise that day. Indeed, that day the market went up.

    If you would like to take advantage of such great investment advice, you may sign up for my service at PorcelainGodTradingAdvice.com

  18. ss says:

    Sooth,

    Is this another of the “20 of the 2 crashes predicted” by Prudent Bear, et al?

    Very encouraging!

  19. ss says:

    BD,

    Lol…we can share notes from my own diaper index.

  20. oldsoothsayer says:

    This is the answer to Bearish.

    Well, it is not suitable to look at past behaviour to predict the future. It does help but past price moves cannot repeat themselves.

    Let’s take an example: The S&P500 in 2000 and today.

    Any cycle analyst out there knows that we are at a reversal point. Big banks and brokerage firm will tell you the contrary because it is illigal to advertise and promote short selling.

    So the cycle is topping out and already moving south.
    I am talking about weekly cycles here.

    Now, you could just take the top in 2000 and say that this is the pattern we are in now.
    That would be misleading though.

    I do not remember exactly, but the top in 2000 was at the end of a cycle while this top is at the end of the weekly cycle.
    This will make a big difference if you were to follow the previous pattern.

    Now: interestingly enough; although the cycles are not in synch, the new ones have a tendancy to mimic their elders when they are in the same situation.
    They will do everything to look like their big bros.

    Like double or triple top when there is a big reversal.

    In our case, there will be a double top like in 2000.

  21. N N says:

    In ‘Winning on Wall Street’ by Martin Zweig, he points to a study done from 1960-1993, that when the Up/Down Volume ratio was greater then 9 to 1 on two days in a three month period, the DJ returned 7% after 3 months, and 14% months after 6 months. This happened yesterday as well as 6/15. Food for thought.

  22. khare says:

    I follow the qualatative approach more but I can see the case for a double top here.

    Many volatility readings of the VIX & put/call ratio have had very bullish readings but failed this summer. We’ve had numerous 90/10 upside days and those have also failed.

    The big thing is seasonality. A lot of these readings ar absolutely worthless during the 2nd yr of the presidential cycle and during summer seasons.

    Gotta love it.

  23. Oldsoothsayer says:

    Answer to ss

    This is just natural law.

    If you take just a simple Fibonnaci retracement of the $SPX since it’s start, you will see that the thing is just plain mathematics.

    a Fibo from 0 to 1553 (all time high in 2000) gives the following measurement.

    366
    593
    776 ***
    960 *
    1185 *

    769 was the first low in October 2002.

    1185 zone is the retracement we have reached twice
    in the past 2 Bullish rallies since May this year.
    This is the zone in which the third Bull rally we are in now should end.

    I am not a Fibonacci buff, however, when my cycle studies gives me a lower range of 950 for the weekly cycles, I am starting to believe firmly in natural law.

    Put Fundamentals on top of that and the all picture gets clearer.

    No?

  24. ss says:

    Sooth:

    “it is not suitable to look at past behaviour to predict the future. It does help but past price moves cannot repeat themselves.”

    “Any cycle analyst out there knows that we are at a reversal point. ……the cycles are not in synch, the new ones have a tendancy to mimic their elders when they are in the same situation.”

    Fascinating! But which is it? Aren’t cycles a look at the past, drawing a conclusion for the future?!

  25. oldsoothsayer says:

    Look at the SPX 500 now!

    It will start going down.
    It is 12:00

  26. oldsoothsayer says:

    It will go down for the next two hours or so because the intraday cycle we are in now follows a pattern that is just natural.
    You cannot win on this because the downward move might be too small; however, it will move down!
    That is for sure!
    100%

  27. Kevin says:

    On topic:
    This is not much more rational that the Porcelain God Oracle, but these repeated rallies with no follow-through remind me of baseball or football. How many times have you seen it that if a team doesn’t take advantage of an opportunity to score, the other team marches down the field and scores or scores in the bottom half of the inning?

    A bit off topic:
    Another reader recommended interactivebrokers for their extremely low commissions (thank you to that other reader!).
    My current broker is famous, with lots of ads, so I know they are _Real_.
    How does one check that a broker is real?
    More broadly, what assurance does one have that money at a broker will actually be there? Regulations or what?
    Maybe this is irrational fearfulness, but when not a day goes by without a phony notice from Paypal or some credit card issuing bank, I want to be careful.

    Back on topic: I appreciate that we are staying open to what the Market wants to tell us, rather than being dogmatic. Barry, in particular deserves praise for this, since he will be eating Kentucky Fried Crow for quite a while if the market doesn’t head south later in the year, so to be open to the possibility of a new/renewed bull takes guts.
    However, I can not see that anything changed yesterday other than psychology. Haven’t we done the “one more and done” Fed fantasy rally enough times already?

  28. Hey says:

    I have a very serious question for all of those technicians on this board. If we keep going down, when will we pop through the other side and be in China?

    BR LOL! I spit my coffee all over my laptop on that one

  29. Craig says:

    I echo the question, what were the confirmation days since the last downturn?

    They have to be on increased volume and except for yesterday we haven’t had volume up to confirm.

    I follow IBD daily and as of tuesday we were in a confirmed downturn. Yesterday’s rally starts the countdown over again. We need a follow through on high volume in 10 days or this is officially the head fake we all think it is.

  30. Ricardo says:

    Hi everyone: I think I have trouble hearing/reading, as nowhere did Bernanke say that the Fed is pausing. If this is not so, I must be demented and I need help! Or is it the otherway around? Desperate bulls trying to grasp at anything!!!

  31. Bynocerus says:

    To reiterate my previous post:

    Upon further review, there were actually THREE confirmation days. The first signal came June 8 when the market went down over 2% then reversed to close up for the day. The first confirmation came 5 days later on June 15, followed by another on June 21 and another on June 29. IF ONE IS PLAYING BY O’NEIL’S RULES, ONE SHOULD HAVE COVERED JULY 12 (emphasis added).

    One of my points was that we’ve already had several confirmation days that turned out to be turkeys during this downturn. During 2000-2002, we had a a ton of false positives. My other point was that, because you’re buying such strong stocks to begin with, if we do break the lows, you can often exit without a loss as long as you’re trading stocks and not indices.

  32. ss says:

    He CAN’t say he’s done.

    He CAN say he’s concerned about tightening too much, and that there is a LAG in the prior hikes they’ve made.

    Did you see the Philly numbers today?

    “The Philadelphia Fed’s monthly survey of manufacturers was weaker than expected, supporting the case for an end to the Fed’s interest rate hikes. The index on general business activity fell to 6.0 from 13.1 in June, lower than the consensus forecast for a decline to 12.0 and about 5 points below the average of the 1990s expansion. This subreading indicates that economic growth is slowing to a rate that is below the economy’s growth potential, a condition presented by Ben Bernanke for a pause in the Fed’s rate hike campaign. ” Tony Crescenzi

  33. G S says:

    From a traditional technical analysis price bar perspective, a significant pattern has formed on the INDU, SPX and RUT daily charts.

    What is the significant pattern? A double bottom.

    For those of you who refer to charts regularly you know this. But, do not underestimate the significance of the price pattern. The pattern presents very low risk and very high reward characteristics. (Low risk:reward ratio)

    For those of you who do not know about double bottoms I encourage you to learn about them. W.D. Gann discovered this very reliable pattern over 100 years ago. With over 100 years of history to reference the double bottom pattern is one of the most significant price bar patterns for a bottom that exists. It is easy to spot and trade and results in at least a breakeven trade if not a huge profit 75% of the time.

    Double bottoms come in all sizes, but only one shape. It is a classic pattern that has called all kinds of major and minor changes in trend in every market you can imagine. I mean ALL markets throughout ALL of history. It is simply a universal pattern that has withstood the test of time.

    Do not take my word for it, study the pattern and learn how to trade it. It is well worth it IMO. Personally, I trade the initiation of the pattern and not the confirmation. For the short sellers out there, double tops are also very common and reliable.

    With all that in mind, take a look at the daily bar charts of INDU, SPX, RUT and there respective ETF’s. INDU and RUT formed perfect double bottoms on Tuesday. SPX’s second bottom is a little higher than the first bottom in June, but close enough. The fact that the market followed through huge to the upside yesterday on very strong positive breadth as noted in previous comments suggests it is the real deal. How far will the market carry to the upside? I have no idea. I am worried about it? NO, my stop loss is at breakeven and I have nothing to lose at this point.

    What usually happens if the pattern is violated and breaks? The market tanks big time. So the line in the sand has been drawn. If the market breaks below Tuesday’s low on an intraday basis look out below. By the way, shorting at that point is a high probability trade.

    Please understand it is important to do your own homework and take complete and total responsibility for your trades and always use stop loss orders to limit loss when wrong.

  34. Craig says:

    Byno:

    Directly from last nights (today’s) IBD’s “Big Picture”:

    “Stocks had another big day June 15 after a Bernanke speech suggested inflation wasn’t out of hand.

    This bit of recent history serves as a reminder that a single-day burst doesn’t necessarily translate into a sustained rally.

    It also underscores the market’s fixation on the Fed’s actions, trumping other developments.

    On Wednesday, there was no let-up in the fighting between Israel and Hezbollah militants in Lebanon. Yahoo (YHOO) plunged 22% after a disappointing outlook and second-quarter numbers late Tuesday. Yahoo’s volume, 982% above average, accounted for more than half of the Nasdaq’s excess trade over Tuesday.

    Yet Yahoo’s implosion barely grazed the Nasdaq. Contrast that to the last time Yahoo tumbled badly, on Jan. 18. The Nasdaq lost 1% after being down as much as 1.7% earlier that day.

    The IBD 100 darted 2.8% Wednesday, outpacing the main indexes. Strong action by leaders helps solidify the market’s tone.

    Friday would mark the fourth day of the latest attempted rally, the first day to look for another follow-through.

    Breakouts are in short supply.”

    If you are using O’Neil’s system, THAT IS IBD, then there HAS NOT been ANY confirmation days. As you can see from “The Big Picture” on IBD, we are only in day four of an “attempted” rally. Note the reference to June 15. NOT a confirmation or a rally but a meaningless one day short burst.

    It will cease to be “attempted” only when we get an up day on high volume within the next 6 days.

  35. ss says:

    GS:

    Good comments, and I agree…however:

    Imho, since the internet made it so easy to do charting, blogs, day traders, and hedgies are all “looking” for the same formations. I’ve found that many times the most “obvious” formations (W bottoms and head and shoulder patterns) don’t work perfectly as everyone “sees” these formations, and naturally anticipates them. That’s why we’ve gotten so many head fakes in the past few years. Many times I see the “breaks” of support shake out the players of the formation…only to then whipsaw back to complete the formation.

    The market will hurt the maximum players it can…always. Fun, isn’t it? ;o)

  36. khare says:

    Hey Oldsoothsayer,

    Far as cycles go.. if I do a fibonaci retracement from the high of 11258.61 to the low of 10681.72 I see that we’re hitting resistance at the 61.8% retracement and now we’re violating the 50% retracement.

    Your posts about cycles are very interesting. Have you thought about setting up your own blog? Very easy to do on blogspot and it’s free!

    Maybe you can get Big Barry to give you a plug!

  37. Craig H says:

    Here’s one for the linkfest. As I live in FL, I can confirm that the housing market here is as bad as this guy says it is.

    Ghost Housing Market
    http://globaleconomicanalysis.blogspot.com/

  38. Bearish says:

    I want to do some weekend reading on techincal analysis.

    Would you guys mind throwing out some book recommendations for learning about technical analysis?

    Thanks.

  39. oldsoothsayer says:

    To Khare:

    No, but I have a special subscription.
    For $10.000 a year, I give advices.

    I have a special price for indians.
    It is like in india for foreigners.
    For you it will be $60.000.
    A bargain my friend!

    Helping chutas now; gee!

  40. Al_K says:

    Although I have watched the market for years, only in the past year have I done any serious studies. Therefore, I consider myself a “newbie” compared to the experienced people on this blog. That said, it doesn’t take much to know this economy is slowing down drastically. I live in the Silicon Valley (or silly con valley) which is a little different from other places, granted, but even here things are really slowing. There are thousands of houses for sale where there were only a hundred or so a month ago. Restaurants and shopping malls are empty but people seem to have jobs, judging from the commute traffic. On the other hand, if you listen to the news media everything is fine. We have some twenty-five year old journalism major just out of college telling us things are great with the economy. We all need to make our own decisions but I tend to believe what I see with my own eyes.

    Newbie

  41. oldsoothsayer says:

    To Ricardo:

    Don’t worry Pal, it is going up for the next 15 days or so.

    It might go back down sharply in between (the market is nervous) , however the trend for the next two weeks is up!
    Sit tight!
    After that, if I were you, I would stay in cash!
    Don’t count too much on bull move from now on. Unless they are rallies on the down side.

  42. BDG123 says:

    Wanna bet the next 15 days will be up? I see absolutely nothing which tells me there is a change in trend. It may happen but you are trying to catch a knife because there is absolutely nothing confirming that statement……….at least not yet.

  43. G S says:

    Craig:

    I agree that whipsaws are more common today then in the past several years.

    When I get whipsawed I get back in again very quickly if the market holds and pops up after taking out a double bottom.

    I also know that triple bottoms are very rare today. So the probabilities favor a big break down if the double bottom fails to hold.

    Back in the good old days triples were common. (Before PC’s and charting software) Back then I did all my charts by hand on K&E 8×8 chart paper cut from a 50 yard roll.)

    So I know what you are talking about. The bottom line is whipsaws go with the territory and all traders must know how to handle them emotionally and technically otherwise the market will get the best of us in many ways.

    Good trading to all.

  44. oldsoothsayer says:

    What do you mean? You don’t see any change in trend.
    Are you blind?
    This stuff is as big as an elephant in my kitchen.

    It is just saying that we are at only 5 points (SPX) of the upper limit of the trading range and that there should be either a move downward then back up or a slow and steady climb to the 1285 target.
    I would rather opt for the later as the market is pretty skittish lately.

  45. oldsoothsayer says:

    I mean, the former.
    Prices will certainly move up and down rather abruptly as the market is pretty nervous lately.

  46. Kevin says:

    Bearish:

    The two books that I recommend most often and are usually the starting point for technicians-in-the-making are (in order) John Murphy – Technical Analysis of the Financial Markets and Martin Pring – Technical Analysis Explained. There are great books that address specific parts of TA, but these are really good primers.

  47. Bynocerus says:

    Man people are thick. Did anyone but Craig miss the part where I said that you would have covered July 12? Did anyone else infer that we could even possibly had any confirmation days since yesterday? Did anyone else miss that O’Neil’s system of buying 4-10 days after the first big rally has already been triggered at least twice, depending on your interpretation, this summer, failing both times?

    I get IBD too, and given the fact that I can read, it was hard for me to miss the part of The Big Picture column where IBD references the FAILED MONTH LONG RALLY THAT PREVIOUSLY OCCURRED.

  48. Bearish says:

    Kevin: Thanks for the recs.

  49. Ronnie says:

    Since I’m not a short term trader, I won’t try to predict the next few weeks either way. But it sure seems that if the Bulls are still capable of making a definitive stand, they might want to do it soon. If they allow their ramp job to be reversed for yet a third time (four if you want to count that KLAC nonsense from last week), then a lot of the dip buyers might start packing it in.

  50. EN says:

    Barry,
    EXCELLENT MARKET CALLS!

    7/13/06: RealMoney.com:

    ” a successful retest of those levels….S&P 1124 is the most likely scenario”-CORRECT FOR $1000, SAYS THE GAME SHOW HOST

    7/18/06: FROM YOU WEBSITE:

    page 2: I suspect a better entry point for short side is still in the future. Here’s a hypothetical scenario…. The market trades down, and finds some support before the month’s end”-Correcto again, for $2000.

    Very good calls.

    Also, I read your blog, where you said(and I paraphrase) : “Brain cancer would not be too overboard for these guys who gave themselves those stock options after 9/11″-

    Gee, I thought I was the only one on earth who, after he felt someone screwed me out of money, or cheated me in some way, or committed some despicable act, that wished those people to drop dead of cancer! Good to know I now have an ally!

    regards,
    EN

  51. The Real G S says:

    BARRY,

    HIGH PRIORITY ATTENTION IS REQUESTED

    Please look into this.

    This is the real G S.

    Either games are being played in this comments thread or typepad is screwing up the, Posted by: and email address of posts.

    All I know is I posted for the very first time ever today in this thread at Jul 20, 2006 1:24:49 PM.

    When I posted the comments about a double bottom the post by: showed “G S”. Now this thread is showing “ss” as the writer.

    And all of a sudden several posts by “ss” that I DID NOT WRITE are linked to my email address.

    What the hell is going on here Barry?

    Please explain and advise.

    Thank you

  52. G S says:

    Sorry Barry

    Never Mind.

    I am a total amateur at posting and it shows with my last post. I was reading the “Posted by:” incorrectly and falsely associating posts below and not above.

    Geezzzzzz. What a bumpkin I am sometimes. I am LOL at myself right now.

    Live and learn, right?

  53. khare says:

    $60 to Indians? How much do you charge the jews?

    All of a sudden I’m reminded why it’s a waste of time to complement anyone on the ‘net.

  54. Craig says:

    Byno..Sorry dude…..

    I didn’t so much miss the cover July 12 as misunderstand your first comment, ie: “I’d add that we’ve already had two of those confirmation days during this downturn, only to have them negated by lower lows.”

    My bad.

    I’m still with Barry’s second post, we need to see follow through confirmation with volume. I’d rather be late…..

  55. Bynocerus says:

    No harm no foul Craig. And I shouldn’t e so surly. I agree that we need to see follow through, but what is very frustrating is that, even with follow-through there’s no guarantee that we’re at a bottom. And I have yet to see anyone with a system that calls market tops consistently, so if you follow O’Neil you often wind up with situations like 2001 where he publishes Enough is Enough, we get a rally, and six months later the markets are at markedly lower lows.

  56. BiB says:

    oldsoothsayer seems like a racist

  57. oldsoothsayer says:

    I don’t like indians as I don’t like Czechs.
    Is this racist?

    I have traveled and lived in about more than a dozen countries.
    Asia, Africa, South America and Europe and I have found nice people in all these places but in India and Czechoslovakia.

    Now, I am a straightforward person. Not a racist.
    If I have something on my mind, I will say it!

    India is not a race, it is a people!
    And I do not like them – right!
    And if he had an email adress; I would have emailed him my comment personaly! Not through the blog.

    Yeah, I am a bear – by nature!

  58. Alaskan Pete says:

    Relax Old Poot Layer.

    There are plenty of nice Czechs. Prague is one of my favorite cities. Some gorgeous ladies there too. I deal with alot of Indians in a professional capacity, both those who emigrated to the US as well as subcontinent natives. Nice folks, great food, rich philosophical/cosmological tradition.

    But this blog isn’t the place for rank stereotyping or wanking about over racial issues. If you want to rant about someone, try the usual suspects…Cramer, Kudlow, the entire analyst team at Fifth-Third, even Helicopter Ben if need be.

  59. Al_K says:

    There is no Czechoslovakia, there are two peoples. The Czechs and the Slovaks. Two countries. Two capitols. Both have beautiful women.

    Newbie

  60. ss says:

    Comments like that from “OldSooth” destroy any credibility and serve to lower the bar of this blog to the likes of a YHOO msg board.

    I regret engaging any of his posts.

    Pathetic. Shut him down Barry.

  61. hey says:

    A few of my very best friends just so happen to be from India. You are a pig.

  62. Oldsoothsayer says:

    Sorry about that people!

    This all thing of seeing indian doctors going on strike to prevent oucast people to access quotas and have them climb up the social ladder had me utterly disturbed.

    You see, I am a Christian.
    When I was in india where I lived for two years, I went to a charity called Saddhu Vaswani mission.
    I asked the director to make a contribution and he showed me a paper with all the possible options.
    Meals for the poor, schooling, etc.
    I just told him to give it to the neediest.
    He checked one of the option and got the money.
    Before I left I went on looking at the paper.
    The check was for something I did not really grasp the meaning of, but I remembered.
    I asked someone later what it meant.
    It was the big social event to come at the mission.

    So, I went!

    Money, money, money!
    Old rich ladies and their grand children!
    Lot’s of fun!

    That was the neediest.

    Two days later, I had my plane ticket, I packed and I left everything!

    It was the drop of water that made the vase overflowed.

    I am not racist; I am a man.

    PS. My wife was jewish – I know what racism means.
    She had to suffer about it and I sympathized with her.
    I despise it.
    But I despise even more vanity and cruelty.
    And more than anything, I despise falseness!

    I will regret not to post to this blog anymore and I apologize to Mr. Ritholtz for that.

  63. ArizonaChartist says:

    GS,

    I don’t think the bar double bottom on the SPX is valid. According to Bill O’Neill the second bottom has to be below the first bottom for the pattern to be valid. If you look at the daily chart of the SPX (which I have done in both AIQ & Reuters) the first bottom was on 6-14-06 and reached an intraday low of 1219.29 with the second bottom on 7-18-06 with an intraday low of 1224.5. As per Bill O., the double bottom pattern is valid if, and only if, the second bottom undercuts the first (which it didn’t in this case) and the top of the rebound between the two bottoms is lower than the top prior to the first bottom.

  64. Al_K says:

    I don’t think we have a double bottom nor do I think we have an H&S forming because it doesn’t fit the criteria. To say it is a double bottom is to say you think the market is going to have a bull run. A bull run here would be difficult considering all the negative financial factors in play. It looks to me as if the market was just having a knee jerk reaction to the middle east and oil prices. It seems to me it is preparing to return to its down direction.

    Newbie

  65. KB says:

    So the question is….anything worth getting into, international or otherwise, at this point ?

  66. pete says:

    K.B
    Let the market cool down for another 1% (or a bit more)and hop on board for a little climb up!

  67. Craig says:

    For those wondering what Jes…ooops, I mean O’Neil would do……LOL!

    from tonights IBD:

    “On Wednesday the market rallied, as Fed chief Ben Bernanke gave testimony that hinted at a possible halt to rate hikes. But as noted in Thursday’s Big Picture, jumping into the market based on one Fed-induced round of gains is a risky proposition. Thursday’s action underscored that.

    The market remains in a downtrend. Trying to get a jump on an upswing without clear signs of strength such as a follow-through day and bullish action by leading stocks puts your capital at risk.

    As we’ve seen lately, a follow-through by no means guarantees big gains for stocks. The major indexes staged a follow-through day June 29 that ultimately went nowhere. An earlier rally attempt never got a follow-through before making fresh lows.

    Trying to buy breakouts has become an extremely difficult task. CBOT Holdings (BOT) gapped up early Thursday after smashing profit estimates. But the derivatives exchange operator frittered away much of its gains, closing below its optimal buy point by day’s end.

    When a top-rated stock, flush from a blowout earnings report, can’t sustain a breakout, that tells you a lot about the state of the market. Three out of every four growth stocks fall during a market downtrend. Cash remains the safest place to be while the market tries to regain its footing.”

    I did catch the HCA 12% run-up today. Stepped out at 48. Bought at 42.75. Also caught the apple trip. Ah cash feels good.

    Charts (and familiarity) are our friends.

  68. GS says:

    ArizonaCharist,

    Technically you are right about the SPX not forming a perfect “valid” double bottom. But “valid” is in the eye of the beholder.

    Personally I do not use Bill O’Neill’s rules to define a double bottom. I use the markets rules.

    The market’s rules can be discovered by going back to 1800 (206 years) and examining the daily price bar patterns from then to now. I can tell you that 50% of double bottoms do not fit into Mr. O’Neill’s definition. I am not willing to miss half of the potentially hugs profits because the second bottom was slightly higher than the first.

    By the way, the NYSE was open half day on Saturday from the original opening in May 1792 until June 1952. Imagine that, the NYSE was open on Saturday for 160 years and it has only been closed on Saturday for 54 years.

    My data sources are the Foundation for the Study of Cycles, Dow Jones Averages 1885-1990 (Hardcover) and the http://www.thechartstore.com

    I do my homework.

    I encourage all of you to learn the entire history of the market you are trading and not just the last 10-40 years. It will take some time, but it is time well spent.

    Human nature being what it is, 90% of people take the path of least resistance and will not take the long road and will not take the hard trade.

    There is some luck involved in trading, but luck favors the well prepared and knowledgeable trader.

    Good Trading to all.