Time for the Bounce

NOTE:  This Market Commentary alert was originally emailed to subscribers at Ritholtz Research & Analytics on 1/23/2008 before the market closed.

This is posted here not as investing advice, but
rather as an example of a trading call for potential subscribers.

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Last week, we noted the % of NYSE stocks trading below their 200 day moving average was about 23%. That suggested we were close, but not at a tradable low.

Today, our trusty Bloomberg terminal is showing just 13% of NYSE stocks trading above their 200-day moving averages. 

That is lower than anytime in the 2000-02 bear market. And lower than anytime in the 1998 and 1994 bear markets.

This indicator is saying that sentiment has become excessively negative — considering we are only 3 months off of the all time S&P500 highs.

This suggests we should begin the counter-trend rally shortly. We would expect this to last anyway from 2 weeks to 2 months, run 5-15%.

We also would use this upcoming lift as an opportunity to sell equities.

This is a bounce, not a major shift in trend . . .

-Barry Ritholtz
January 23, 2008

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