Astute observations from long term market watcher Vince Farrell:

“As to the stock market: again, calm down. Counter trend rallies are euphoric. They are fast, big, and make you want to believe again. Refer though, to the ancient rule of thumb that things reverse by about half of the prior move. We went from 1422′s recent S&P high to about 1260 intraday in the futures market, or 162 points. If we retrace half of that, or 81 points, we take the average back to 1341. This rebound, as I write Thursday afternoon, has carried to 1325. I would expect this rally, as much as I love it, to not carry much further. A trading range around 1300, +/- 40 points is my guess.”

-Vince Farrell

Category: Markets

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7 Responses to “QOTD: Counter Trend Rallies”

  1. nofoulsontheplayground says:

    Wise advise. Above a .618 re-trace and a full re-test of the highs is the next step.

    Look to GS for the real story here. Furthermore, a gap up and dump like we’re seeing on many issues is not the sign of market strength. If this were the real deal, we’d close at the highs of the days near necklines of many possible daily inverse H&S bottom formations. That’s not happening, so this appears to be nothing more than an oversold bounce.

    That said, positive daily divergences at the lows this week point to a couple weeks of upward bias. It is very rare for oversold lows with positive divergences not to move into overbought territory before reversing down.

  2. Futuredome says:

    All eyes are on Europe. Does Germany “share” in the pain or does the whole thing blow apart country by country?

  3. 4whatitsworth says:

    Not good a reading tea leaves it seems like the issues are..

    #1 Will the united states go into a double dip recession
    #2 Will Europe work out their problems and keep the union from collapsing
    #3 Will emerging markets survive the slowdown in demand from the US and Europe
    #4 Will there be another middle east eruption
    #5 How much investment capital is really out there and where will investment capital accumulate cash, bonds, real estate, or stocks.

    For now my bet is that we will be in a trading range of Dow 12,000 to Dow 13,000 +/- 500 pts with suckers on all sides of the trade.

  4. bear_in_mind says:

    Sorry, not seeing a trading range with this many major negative global factors in-the-mix. Too sane, too predictable… not to mention the addition of HFT to an already volatile mix. Not gonna predict a face-ripping rally or death-defying dive, but a quiet, leisurely summer? Ha, hah, ha! Keep your powder dry and stay strapped in.

  5. VennData says:

    And when it doesn’t “retrace” to that amount, it does something else, a statistically significant part of the time.

  6. cognos says:

    So a “double dip” recession… has never happened. And also has been the refrain of all the “equity haters” since 900 on SPX. Every year.

    But yeah, lets keep worrying about that one. Pretty soon (say within a decade?) you’ll be “right” like Roubini and Taleb always are (right, and poor investors… yet somehow on TV and seen as “wise”).

  7. cognos says:

    Seems we make new highs in April every year. 2010 – 1220, 2011 – 1350, 2012 – 1420…

    Anyone betting against new highs in 2013? Looks like 1550ish…