Extreme Volatility

It was another extremely volatile day in the U.S. stock market. When I finished my podcast on Monday and we had that big drop, I suspected that Tuesday might be a reversal Tuesday.  So I thought we’d get a bounce on Tuesday and, in fact we did.  We had a big rally; the Dow was up 400 points or so. Then this morning the Dow opened up down 500 points.  In fact when I woke up this morning, a couple of hours before the market opened, the Dow was down closer to 600.

Reversing Up

Typically when we get these huge sell offs right on the open because overnight weakness, what generally happens is that we end up reversing up – getting some buying after we open the markets down, and that’s exactly what happened. The markets ended up recovering the entire loss.  We closed around the highs of the day: the Dow up 230 points and the NASDAQ up just over 100 points. This is a reversal.  Checking the numbers, the Dow did not take out yesterday’s low but the NASDAQ and the S&P did.  All the markets closed above the previous day’s high.

Bear Market: Primary Trend is Down

I’m sure some people will look at these numbers and say, “Hey, this is a technical reversal, we took out the lows we closed above the highs,  it’s an outside day and this is maybe the end of the correction.  I do think potentially we could have more to the rally.  But I think the rally is the correction.  I still think this is a bear market.  We narrowly avoided the Dow Theory sell. The Dow Theory is still on a buy, and now we have a bit of a reversal, so maybe this correction has a little more legs. The correction being the move up.  I think the primary trend is down.  I don’t think today’s reversal is big enough to have put in the low of this correction if it is a correction. So I still think that we are in a bear market.