MLR - Pre-Market Pulse for Wednesday, January 7, 2014
The major market averages took a beating once again on higher volume while oil plumbed new depths falling to under $48 a barrel. OPEC says it will not take action until oil reaches $40. Selling pressure has continued unabated with the market down for five days in a row and the Dow posting its worst annual start since 2008. After five days of downside with the indexes approaching their mid-December lows, the potential for the market to bounce sharply grows, so traders should keep tight trailing stops on any short positions.
Evidence of the market's tendency to bounce once the need to sell becomes obvious enough that those who claim to know declare that the market is now in a correction, was found in yesterday's move off the lows as the market tried to recover but came up a bit short. The December lows at 1972 on the S&P 500 and 4547 on the NASDAQ Composite provide reasonable reference points for a possible undercut or at least a "Wyckoffian retest" where the indexes approach the lows but volume is not sufficient to drive them below the December lows. An undercut of the December lows on both indexes, should that occur, might also coincide with a test and bounce off the 200-day moving average, but the situation remains fluid, at best. This morning, futures are up strongly as the bounce gathers some legs on a very short-term basis, thus we might conclude that the market is at this point making an attempt at a Wyckoffian retest, but the 50-day moving average looms above and could present overhead resistance. Meanwhile the Market Direction Model remains on a sell signal, but that could change at any time.
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