The Lows For The Year Are In

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It’s my opinion that we’ll look back at last week as the 2008 trading low (not to be confused with a market bottom) before a harsher downside comeuppance arrives next year.

– Todd Harrison, “Have we seen the 2008 trading low?”, MarketWatch, Wednesday October 15

Despite today’s negative action, I believe the lows for the year were put in last Friday.

The main thing that convinces me of this is the intensity of the selling and then buying we’ve seen over the last 2 1/2 weeks. 

During the two weeks from Monday September 29th through Friday October 6th, there were 4 90% Down Days.  That is, there were 4 days during that 10 day trading period during which more than 90% of all the volume was traded on a downtick – a marker of a capitulation type of day: Monday 9/29, Monday 10/6, Tuesday 10/7 and Thursday 10/8.

Monday’s buying was similarly frenetic, a 90% UP Day, and indicative of returning demand.

The classic work on 90% Days has been done by Lowry’s.  See, for example, Paul Desmond’s excellent “Identifying Bear Market Bottoms And New Bull Markets” (Feb 26 2002) (Thanks to Trader’s Narrative for pointing me to this work).

Stocks are also pretty cheap – at least for now.

Short term we’re in a range set by Friday’s close around 900 and Monday’s close around 1000 – the S&P is currently at 951.  We could trade in that range for a few days but I’d be surprised if we broke 900 to the downside and I expect 1000 to be taken out in short order.

Today’s 400 point decline on the negative September Retail Sales Report from The Commerce Department means nothing to me.  We didn’t know consumer spending was weak?  That’s a surprise?  I’ve heard commentary that this probably pushes GDP negative for the 3rd quarter.  You mean we might be in a recession?  Who knew?  Nobody’s mentioned a thing about that.

In fact, I believe we’re set up for a nice year end rally a la the post September 11th, 2001 rally that took us all the way through year end.

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