Downtrend Snaps Market Back To Reality

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What a week, and what a Friday. It looks like we had an oversold key reversal on Friday, but we need to wait at least until the end-of-day Monday to get some confirmation signals that a new uptrend is beginning. I made a few initial purchases on Friday, but I won't get aggressive or use margin until there is a white candle posted on this chart. 

These are the buy-write indexes. All three had strong closes on Friday with only the NASDAQ still below its 10-day. I don't think we can have a new uptrend until all three close above their 10-day averages. 

Notice that when the market is selling off these buy-write indexes become much more volatile. When the uptrend resumes, the volatility settles way down and the buy-write indexes start to trade in a tight daily range. Early February is a good example of a transition from a volatile downtrend to an orderly uptrend, and I'm sure we'll see something similar happen again when the market is ready to trend higher.

A side note about these buy-write indexes, because they get volatile while the market is selling off, they can give false signals if you don't pay close attention. The buy signal occurs when the volatility is gone, but also the best buy signals from the buy-write indexes come when the PMO is at the bottom of the range rather than as the PMO is declining.

These are the stock indexes and I think they all need to close above their 5-day averages before we can declare a new uptrend. Similar to the chart above, we are still waiting on the NASDAQ to close above the 5-day.

The 52-week new lows will settle way down to harmless levels when the new uptrend begins. If on Monday after the close, the level of the new lows on the NASDAQ is below 50 (and preferably even lower), then I would consider it to be a data point that helps confirm a new uptrend.

Here is a look at the end-of-day calculation of new lows (the symbols in the chart below are different than the symbols in the chart above). You'll notice that there were never enough new lows within the NYSE common stocks to indicate the recent selling was a serious decline for the general market. (Common-stock-only seems much more relevant to me because it excludes ETFs and closed-end funds that trade on the NYSE.)

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Disclaimer: I am not a registered investment adviser. My comments reflect my view of the market, and what I am doing with my accounts. The analysis is not a recommendation to buy, sell, ...

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